Small Firm Internationalization and Business Strategy

Small Firm Internationalization andBusiness StrategyAn Exploratory Study of ‘Knowledge-intensive’ and‘Traditional’ Manufacturing Firms in the UK

J I M B E L LUniversity of Ulster, UK

DAV E C R I C KUniversity of Central England, UK

S T E P H E N YO U N GUniversity of Strathclyde, UK

The objective of this study was to explore the linkages between the overallbusiness strategies of small firms and their patterns, processes and pace ofinternationalization. A qualitative approach was adopted, involving 30 in-depth interviews with key decision makers of internationalizing small firmsbased in 3 UK regions (15 ‘knowledge-intensive’ and 15 ‘traditional’ firms).The findings suggest that business policies, including those linked toownership and/or management changes, had an important influence uponthe international orientation of many firms. There were close relationshipsbetween product policies and market focus, with product or processinnovation often providing an important stimulus to international expansion.However, differences existed in the patterns, processes and pace ofinternationalization between small ‘knowledge-intensive’ and ‘traditional’manufacturing firms. The implications of these results on firm strategy,public policy and theory development are discussed and a series of researchquestions are postulated for future investigation.

KEYWORDS : internationalization; ‘knowledge-intensive’; SMEs; ‘traditional’manufacturing firms; United Kingdom

Introduction

The literature on the internationalization process of small firms has beenreviewed by a variety of authors (see for example Andersen, 1993; Leonidou and

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Katsikeas, 1996). Therein, various conceptualizations are postulated includingcontingency, establishment chain, ‘stage’, network and resource-based theories.Recently, Coviello and McAuley (1999: 223) concluded that: ‘. . . SME [small-and medium-sized enterprise] internationalization is best understood byintegrating major theoretical frameworks’ and called for ‘future research basedon a more holistic approach to conceptual thought, empirical work and methodo-logical development’ (see also Fletcher, 2001). Recognizing the variety of frame-works employed in prior research in the area and the diverse findings, we reporton a recent study designed to further investigate issues pertaining to SME inter-nationalization. The aims of the research were: first, to explore internationaliza-tion behaviour within the holistic perspective of small firms’ overall businessgrowth strategies; and, second, to identify any differences in the patterns,processes and pace of internationalization of smaller ‘knowledge-intensive’ and‘traditional’ firms within the manufacturing sector.

The research focused on small firms because of their recognized importance toeconomic activity, employment, innovation and wealth creation in manycountries (Acs et al., 1997; Katsikeas et al., 1998). Moreover, improving the inter-national contributions of the small business sector is widely regarded as anincreasingly important policy priority and the focus of public policy support inmany countries (Crick, 1997; EIM/ENSR, 1993; United States Small BusinessAdministration [US SBA], 1993; McNaughton and Bell, 2001; Organisation forEconomic Co-operation and Development [OECD], 1997). Factors such aschanging consumer preferences, developments in manufacturing, communi-cation and information technologies, and changing competitive conditionsprovide a favourable environment for small firm internationalization now andinto the future. Exploring the diverse experiences of ‘knowledge-intensive’ and‘traditional’ firms is important from both academic and public policy perspectivessince within the former category, in particular, are ‘born global’ firms thatcompete globally virtually from inception (Crick and Jones, 2000; Knight andCavusgil, 1996; McKinsey & Co., 1993; Madsen and Servais, 1997).

In this study, the term ‘internationalization’ is used in the same context as thatdefined by Welch and Luostarinen (1988), as ‘the process of increasing involve-ment in international markets’. Business strategy is used as an umbrella term todenote the broad range of strategic options open to the firm, including bothorganizational and functional management strategies, product/market strategies,and diversification strategies.1 ‘Knowledge-intensive’ firms are defined, followingCoviello (1994), as those ‘having a high added value of scientific knowledgeembedded in both product and process’. Although the term is widely used todescribe ‘knowledge based’ firms, typically in information and communicationtechnologies (ICT), it has been extended in the present study to incorporate high-technology manufacturing firms in other sectors (see also the Research Focus andMethod section).

The empirical research focused on ‘traditional’ or ‘knowledge-intensive’manufacturing firms in three locations. At each, 10 in-depth interviews wereconducted with CEOs or Export Managers of internationalizing firms (5‘traditional’ and 5 ‘knowledge-intensive’) i.e. making 30 interviews in total. The

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patterns and pace of firm internationalization were investigated and the relation-ship between domestic and international activity explored within the broadercontext of the overall business strategy of the firms.

Following a review of extant theories of small firm internationalization, themethodology adopted in the study is outlined and justified. Thereafter, findingsare presented and discussed and issues for future research identified. Finally, theimplications for research in the area and for public policy in support of small firminternationalization are considered.

A Critical Review of the Theoretical Frameworks of SmallFirm Internationalization

Internationalization BehaviourMuch of the early literature on internationalization behaviour concludes that theprocess involves a series of incremental ‘stages’ whereby firms gradually becomeinvolved in exporting and other forms of international business. As they do so,they commit greater resources to the foreign market/s and target countries thatare increasingly ‘psychically’ distant (Bilkey and Tesar, 1977; Johanson andVahlne, 1977; Cavusgil, 1980; Czinkota, 1982). Although the number of stagesdiffers, a common underlying assumption of extant ‘stage’ models is that firmsare well established in the domestic market prior to developing internationalstrategies. Despite continued enthusiasm and support among many researchersfor this notion of incremental internationalization (Leonidou and Katsikeas,1996; Petersen and Pedersen, 1997; Ellis and Pecotich, 1998), criticisms of thisview were being made as long ago as the late 1970s (see for example Bell, 1995;Buckley et al., 1979; Cannon and Willis, 1981; Reid, 1983; Rosson, 1984; Turnbull,1987). Indeed, Andersen’s (1993) conceptual critique focused on the weak theor-etical underpinning of many of the models and the lack of congruence betweentheory and practice. He concluded that their ability to delineate boundariesbetween stages, or adequately explain the processes that lead to movementbetween stages, was rather limited. Moreover, the applicability of ‘stage’ theoriesto internationalizing service firms has also been questioned (Chadee andMattsson, 1998; Knight, 1999).

In the last decade a new stream of research has emerged into ‘born globalfirms’ (McKinsey & Co., 1993; Madsen and Servais, 1997). Also known as ‘inter-national new ventures’ (McDougall et al., 1994; Oviatt and McDougall, 1994),‘committed internationalists’ (Bonaccorsi, 1992) and internationally focused‘knowledge-intensive’ firms (Bell, 1995; Boter and Holmquist, 1996; Coviello,1994; Jones, 1999), these tend to be smaller firms formed by active entrepreneurs.Typically, their offerings involve substantial value added, often due to a signifi-cant breakthrough in processes or technology (Knight and Cavusgil, 1996). Acharacteristic is that management adopts a global focus from the outset andembarks on rapid and dedicated internationalization (Jolly et al., 1992; McKinsey& Co., 1993; Bloodgood et al., 1996). According to Knight and Cavusgil (1996),the emergence of such firms can be explained by recent trends such as advances

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in information and communication technologies, the increasing role of nichemarkets, and the growth of global networks, which are facilitating the develop-ment of mutually beneficial relationships with international partners.

There is little doubt that these trends will increasingly exert a strong influenceon small firm internationalization. What is also clear from these authors’discussion of the ‘born global’ phenomenon, is that firms with ‘an internationalvision . . . from inception’, or soon thereafter, (Oviatt and McDougall, 1994),present a substantive challenge to internationalization ‘stage’ theories and thenotion of incremental internationalization (see also Madsen and Servais, 1997).Indeed, divergent empirical results have led many authors to seek alternativeframeworks to the internationalization process models.

The internalization/transaction cost paradigm represents a generally acceptedmodel in the international business field, with substantial empirical supportespecially in respect of the foreign direct investment (FDI) decisions ofmultinational enterprises. The paradigm has been applied to the early inter-nationalization stages by Anderson and Coughlan (1987) who argued thatintegration of marketing and distribution functions may be preferred when thefirm possesses specialized knowledge and when agents are difficult to find.However, McDougall et al. (1994) found that in some international new ventures,entrepreneurs did not make internationalization decisions on the basis of lowestcost locations; and neither did they attempt to internalize activities to the pointwhere the benefits of further internalization were outweighed by the costs.Furthermore, strategic alliances were found to be common for international newventures even though the firms ran the risk of losing proprietary know-howthrough opportunistic partner behaviour.

Increasing interest has also been shown in network theory and international-ization (Benito and Welch, 1994; Johanson and Mattsson, 1988; Johanson andVahlne, 1992). Based on detailed case studies of four software firms, Coviello andMunro (1997) conclude that:

. . . our understanding of the internationalisation process for small firms, at least smallsoftware firms, can be enhanced by integrating the models of incremental internation-alisation with the network perspective. (Coviello and Munro, 1997: 379)

These authors suggest that this externally driven view of internationalization(the external web of formal and informal relationships) provides additionalinsights to the internally driven perspective of Johanson and Vahlne (1990). Inthe latter, the evolution of internationalization is based on managers’ cognitivelearning and competency development, which gradually increases throughexperience.

There is no question that network relationships with partners (both direct andindirect) offer helpful new insights and require to be incorporated into modelsor frameworks of small firm internationalization. However, the cause and effectrelationships are not yet totally clear. Indeed, it might be argued that networksprovide mechanisms to overcome resource deficiencies, rather than being driversof internationalization per se.

Recognition that internationalization is affected by multiple influences has led


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to growing interest in contingency approaches. Such a view was articulated byReid (1983), but did not attract much attention until recently. However, in thelast decade Woodcock et al. (1994), Yeoh and Jeong (1995), Kumar and Subra-maniam (1997) – among others – have developed contingency frameworks in theinternational business and exporting fields. In justifying this perspective, Kumarand Subramaniam (1997) argue that the existing literature has not devoted muchattention to evaluating market selection and mode of entry decisions as inter-dependent decisions. One might go even further and suggest that the range ofthe firms’ internationalization decisions, incorporating product decisions, marketchoice and entry modes, are made in a holistic way (a notion initially presentedby Luostarinen, 1979).

In a similar vein, Bell and Young (1998) and Coviello and McAuley (1999)have argued that excessive attention has been paid to the merits of competingtheories and models rather than to their potential complementarities. The latterauthors conclude that SME internationalization is best understood by integrat-ing major theoretical frameworks. Bell and Young (1998) contend that the natureand pace of internationalization is conditioned by product, industry and otherexternal environmental variables, as well as by firm-specific factors.

Indeed, firm- and industry-specific influences merit further investigation asparticular ‘critical incidents’ may impact on firms’ overall business strategies andmarket focus. Firms may also experience ‘epochs’ of internationalization,followed by periods of consolidation or retrenchment, or they may be involvedin particular ‘episodes’ that lead to rapid international expansion or de-inter-nationalization (Crick, 2002; Oesterle, 1997; Pauwels and Matthyssens, 1999).These ‘episodes’ or ‘epochs’ may be triggered by environmental forces thatimpact on the strategies of domestic or overseas customers and other networkpartners, as well as those that directly influence the focal firm.

Business Strategy and InternationalizationMelin (1992) has highlighted the limited attention that has been paid to the linkbetween ‘internationalization theory’ and strategy issues at both conceptual andpractical levels. The absence of linkages is perhaps most evident in relation tosmall firm strategies and internationalization. In some respects this situation issurprising, given that Ansoff (1965) identifies new market development (i.e.internationalization) as a viable strategy for rapid small firm growth in hisproduct-market expansion matrix, as an alternative to developing newproduct/service offerings for the domestic market.

However, in other respects the lack of attention is less remarkable and may bepartially explained by a number of factors. First, much of the early literaturecharacterizes small firms’ export behaviour as essentially unplanned and reactive,with firms responding to unsolicited orders or enquiries rather than pursuingproactive strategies (Bilkey and Tesar, 1977). Second, many of these contri-butions tend to regard international involvement as of secondary importance todomestic market activities and something that firms only consider once they haveestablished a secure foothold in the home market. Thus, domestic and inter-national developments are often viewed as diverse strategic solitudes, rather than


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complementary strategies for firm growth. Third, the financial and humanresource constraints of smaller firms are well documented, as is an absence offormal planning (Carson et al., 1995). This ‘resource poverty . . . requires somevery different management approaches’ (Welsh and White, 1981), which oftenreflect the implicit, rather than explicit, nature of the process in small firms(Pennings, 1985). In these circumstances, small firm internationalization is oftenconsidered to be ad hoc and export activity regarded as ‘at best . . . unplanned,reactive and opportunistic’ (Bradley and Mitchell, 1986; Westhead et al., 2002).

Nevertheless, Mintzberg (1973) and others (Timmons, 1978; Gibbs and Scott,1985; Shuman and Seeger, 1986) observe that a major factor in the continuedsuccess and expansion of small firms is the strategic planning activity undertakenby CEOs and that strategy formulation is essentially a ‘top-down’ process. In thiscontext, it should be recognized that the absence of an explicit and formalstrategy does not equate to the lack of a strategic vision, whether or not thisinvolves a global focus. It is suggested that strategic planning activity will becomemore formal and sophisticated over the life cycle of the business.

However, in this context, some work indicates that the motivation to think andact strategically may only be brought about by a crisis within the organization(Aram and Cowan, 1990). Other research shows that the ability to use strategicmanagement practices appropriately is a function of the entrepreneur’s previousexperience (Bracker et al., 1988); and of contact with external advisors or non-executive directors (Berry, 1998). The latter two studies related to small firms ingrowth/small high-tech sectors, and are thus significant in the context of thepresent work on ‘knowledge-intensive’ versus ‘traditional’ firms. Related workalso concerns the influence of management buy-outs (MBOs): a review of studiesin the USA, France and the Netherlands (Wright et al., 1992) indicated thatshort- and medium-term improvements in performance and strategic focus, atleast, were closely associated with the incentives of MBOs.

More recently, Welch and Welch (1996) have attempted to develop a longi-tudinal conceptual model to identify the interrelationships between the twostreams of international business inquiry, that is, internationalization and strategicmanagement. The authors stress the significance of the ‘strategic foundations’(knowledge, skills and experience, networks, etc.) of the enterprise and itsexternal environment, and identify planned and unplanned routes to interna-tionalization, with networking important in both. They conclude by calling for‘empirical studies that specifically focus on strategy and internationalisationprocess interconnections’ (Welch and Welch, 1996: 25).

Andersen and Kheam (1998) used a resource-based framework to explore theinternational growth strategies of small- to medium-sized Norwegian exportingfirms. Ansoff’s (1965) product-market expansion matrix is used to classifyalternative growth strategies vis-a-vis market penetration, market development,product development, and diversification growth. Julien et al. (1997) alsoproposed a typology of the strategic export behaviour of SMEs based on theircase study research. In addition, the importance of the wider business strategycontext in internationalization is implicit in a number of other studies (Melin,1992; Préfontaine and Bourgalt, 2002). For example, Coviello and Munro (1997)


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identify issues such as product diversification and acquisition as influences ininternational development. Additionally, Bell’s (1995) study showed examples ofsoftware companies that followed clients into international markets or sought tobe acquired in order to sustain domestic and principally international growth.

The increasing interest in ‘born global’ firms is important in this context too,since for such companies the key business strategy of the firm is rapid and dedi-cated internationalization. This phenomenon suggests that many firms no longerregard international markets as ‘simple adjuncts to the domestic market’(McKinsey & Co., 1993), but that business strategies are developed from theoutset with global markets in mind. Boter and Holmquist (1996) compared casesof traditional manufacturing (engineering) firms with innovation-oriented smallfirms. The former were integrated into the manufacturing systems of largecompanies, subcontractors and customers; operated with a production-orientedculture; had a local rather than global focus; pursued a stepwise internationalexpansion; and were often family-owned. The latter were much more dynamic,independent, globally focused firms that internationalized rapidly, with a lowerorientation towards the domestic market.

Thus, extant research suggests that a greater understanding of both thedomestic and international behaviour of smaller firms is still required. Moreover,critical interrelationships between domestic and export activities also need to beexplored within the context of the firms’ overall business strategies. The presentstudy seeks to address this lacuna and provide additional research and publicpolicy support perspectives on these linkages. The specific objective of theenquiry was to explore the interrelationships between overall business strategyand internationalization. A number of key issues were empirically investigatedin depth. These included:

• firms’ initial business strategies, growth objectives and international orien-tation;

• the stimuli which influenced the choice of strategies and subsequent oper-ational decisions; and,

• the role of internationalization in the overall business strategy of the firms.

Research Focus and Method

The research adopted a case study approach involving 30 in-depth semi-struc-tured interviews with Chief Executive Officers (CEOs) or export managers ofsmall-to-medium sized internationalizing UK companies. A sample of five‘knowledge-intensive’ and five ‘traditional’ manufacturing firms was selected forinvestigation in each of three locations (England, Scotland and NorthernIreland).2 The research objective and decisions relating to the choice of method,sample selection, data collection procedures and analysis are elaborated uponhereafter.

As previously indicated, the study adopted Coviello’s (1994: 17) classificationof ‘knowledge-intensive’ firms as those ‘having a high added value of scientificknowledge embedded in both product and process. Often, this knowledge is also


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required in sales and marketing functions’. Although this term has mainly beenapplied to ICT firms (often, in the computer software sector), the definition wasextended to include other manufacturing companies in recognition of thegrowing technological sophistication of firms in other industry sectors. Forexample, many firms in the printing industry, which were once very traditional,now use the latest computer technology in design and production and oftendistribute products by electronic means. Similarly, some clothing and textile firmsare now producing garments using new fabrics that have a very high technologicalcontent and frequently employ computer aided design (CAD) and/or computeraided manufacturing (CAM) processes. Among ‘traditional’ manufacturingfirms, such as electrical/mechanical engineering or furniture manufacturing, thetechnological content of products need not necessarily be high, although somequite sophisticated ‘knowledge-intensive’ processes may often be involved, forexample packaging in the food and drink industries.

As already indicated, the main objective was to explore the interrelationshipsbetween business strategy and internationalization. In addressing this objective,the research design attempted to avoid what Kamath et al. (1987) refer to as a‘dominant use of logical-empiricist methodology’, which has ‘bedevilled’ inter-national research. Instead, a qualitative in-depth interview approach wasadopted in order to seek richer and deeper insights into the complex phenomenaunder investigation and to attempt to answer and explain ‘why’ and ‘how’ typeresearch questions (Easterby-Smith et al., 1994; Eisenhardt, 1989; Yin, 1989).

The approach selected is consistent with a growing trend towards qualitativemethods in empirical enquiries at the marketing/entrepreneurship/international-ization interfaces (Carson and Coviello, 1996; Coviello and Munro, 1997; Julienet al., 1997). These are also increasingly prevalent in industrial network research,which has a strong business internationalization focus (Axelsson and Johanson,1992; Melin, 1992). Indeed, Easton’s (1995) robust epistemological defenceconcludes that they ‘are a powerful research method and one particularly suitedto the study of industrial networks’.

Another persuasive argument for adopting such approaches in small businessresearch is that it may be the only way of obtaining information from the keydecision makers, given their noted reluctance to complete questionnaires.Moreover, a typical lack of published information (in the form of shareholderreports, commercial analyses, etc.), poor recording of internal data and a markedreluctance of small business managers to divulge commercially sensitive infor-mation also make other forms of enquiry particularly problematic (Carson et al.,1995). Given the preceding considerations, the nature of enquiry, the size of thetarget firms and evidence in the extant literature of network influences on inter-nationalization, in-depth interviews were considered to be the most appropriatemeans of exploring the phenomena under investigation.

In selecting firms, the approach taken was consistent with that of Eisenhardt(1989) who suggested that ‘random selection (of cases) is neither necessary orpreferable’. Indeed, she further asserts that ‘extreme examples’ are most appro-priate when seeking to extend theory. The recent literature provides compellingevidence of differences in the internationalization strategies of ‘traditional’ and


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‘knowledge-intensive’ firms (McKinsey & Co., 1993; Oviatt and McDougall,1994). Consequently, these categories were chosen as the ‘extremes’ and groupsof small manufacturing firms from each were selected for the purposes of furtherinvestigation and comparison.

The ‘knowledge-intensive’ group consisted mainly of electronics and infor-mation technology firms, while the ‘traditional’ group was made up mostly ofengineering, food and textiles firms (see Table 1 for selected characteristics of thefirms). In all other respects, an attempt was made to match groups of firms ateach location. The basic selection criteria were that firms should:

• be current exporters (a minimum export ratio or sales turnover was notspecified in order to obtain a sample of firms exhibiting various degrees ofexport involvement);

• employ less than 250 staff (in line with the UK government’s criteria fordefining SMEs);3 and,

• be independent and indigenous (i.e. not subsidiaries of larger domestic orinternational companies, to avoid potential resource and cultural influenceson decision-making).

The sampling frame was constructed using various regional/national SMEdatabases and directories of firms known to have an export involvement (such asScottish Enterprise and Northern Ireland Local Enterprise Development direc-tories). In addition, other published information available on the firms (pressreports, trade association listings, etc.) and the three researchers’ pre-existingknowledge of firms in their own locales was used in the selection of the finalsample.

As already indicated, information was collected via in-depth interviews witheither CEOs or export executives (26 CEOs and 4 export executives, respec-tively). In all but one of these cases, where the firm had been re-established, thesekey decision makers had been involved in export development from the outsetand played a pivotal role in internationalization decisions (a crucial factoridentified by Miesenbock, 1988). Interviews lasting two to three hours weresupplemented by company brochures or other materials provided by the firms.They were conducted in each location, using a pre-tested interview schedule (seeAppendix 1) and a data collection template designed to ensure consistencybetween the researchers.

The interview schedule contained a number of structured questions designedto gather data for classification purposes (firm size, age, export experience,export ratio, first export market/s, current market/s, etc.). Wherever possible, thisinformation was triangulated with other on-line and secondary data sources. Inaddition, a series of open-ended questions were used to probe the strategic direc-tions of firms and explore underlying reasons for key internationalizationdecisions. These included questions on specific circumstances surroundingparticular episodes (such as the first internationalization decision, subsequentmarket selection and entry decisions, etc.) and the rationale for why particulardecisions had been taken. Particular events that resulted in a change or refocus-ing of business strategy were investigated in depth and the firm’s subsequent


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strategic directions were explored. These facilitated a wide-ranging discussion ofbusiness and internationalization strategies in a manner that enabled respon-dents to provide their own account of the way in which such strategies hadunfolded.

Structured questions were analysed manually to obtain a profile of partici-pating firms and compare the characteristics of the two groups. Thereafter, quali-tative techniques were used to systematically analyse open-ended questions,undertake a thematic analysis and identify the patterns of response betweengroups.

As can be seen in Table 1, the knowledge-intensive group and the traditionalgroup were very compatible by age and turnover. However, while traditionalfirms tended to have slightly longer export experience, knowledge-intensive firmshad generally higher export ratios (see also Table 2). These variations suggestdifferences in the pace of internationalization between the two groups. Noobservable differences were found to exist between firms in particular regions;nevertheless, generalizations should not be made due to the relatively smallsample size and their non-random selection.

In order to facilitate further discussion of the themes emerging from theresearch, background information on each of the case study firms, including briefdetails on age, size, products, markets and export involvement, is contained in


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Table 1. Characteristics of the Sample

Knowledge-intensive firms Traditional firms(n) (n)

Period of establishmentLess than 10 years 3 310–20 years 9 8More than 20 years 3 4

Size of firm (turnover in £m)Up to 1 2 31.0–1.9 3 52.0–4.9 9 4More than 5.0 1 3

Export experienceLess than 5 years 5 25–10 years 6 7More than 10 years 4 6

Export initiationLess than 2 years after start-up 3 32–5 years after start-up 4 35–10 years after start-up 3 3Over 10 years after start-up 5 6

Export ratio (% of turnover)Less than 20 4 420–49 2 850–69 5 2Over 70 4 1

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Table 2. Company examples are used to illustrate and support the results, whichare presented hereafter.

Findings

The research revealed a number of important general findings in each of thebroad areas of business strategy and internationalization being investigated, butalso identified a number of interesting differences in response between ‘know-ledge-intensive’ and ‘traditional firms’. Each of these areas is more fully elabor-ated upon in turn.

The Firms’ Initial Business Strategy, Growth Objectives andInternational OrientationA number of factors appeared to exert a significant influence on initial businessstrategies, growth objectives and international orientation of all firms. First,ownership and management issues strongly influenced firms’ business strategiesand international focus; second, product and market development strategieswere closely linked; and third, the introduction of new process technologies oftenforced firms to revise their strategic directions. However, in terms of patterns andpace of internationalization ‘knowledge-intensive’ and ‘traditional’ firms res-ponded differently, with the latter being less aggressive in their growth strategiesand more cautious in internationalizing.

Ownership and Strategic DirectionThere was evidence of an association between the policy established for thebusiness, overall company development and international focus. For example,nine firms had undergone changes of ownership or management since theirestablishment, mainly through MBOs but also due to mergers, acquisitions orinsolvency (cases K1, T2, K6, T5, K9, K11, T10, T11, T14). Often, these changesled to a reappraisal of business strategies and/or a refocusing of business activi-ties, part of which included internationalization. Indeed, these episodes oftenappear to be a defining point in the development of the firm. As one respondentobserved:

we were going nowhere internationally, or as a firm, until the current management teambought the firm out. (CEO, case K1)

Both ‘knowledge-intensive’ and ‘traditional’ firms were affected. In the former,MBOs were often linked to venture capital funding and/or financial support fromregional development agencies. The injection of financial resources facilitated astrategy of acquisition-based growth for some firms: perhaps even more import-ant was the director-level expertise the funding agencies brought in areas such asfinancial management skills and the disciplines of strategic planning, forecastingand budgeting. As another CEO commented:

the injection of cash was important to us, but it was really the expertise and skill thatthey [investors] brought that gave us a great push. (CEO, case K9)


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Table 2. Basic Characteristics of Case Firms

Year No. of Turnover Products First Export Top Export MarketsEstablished Employees (£ m) Export Ratio (%)

Knowledge-intensiveCompany

K1 1983 48 3.0 Card-operated electronic 1987 70 USA, Netherlands, Australiasystems

K2 1987 40 1.5 Electric transformers 1987 70 Netherlands, EireK3a 1976 75 3.5 Printing 1986 10 Hong Kong, Sri LankaK4 1984 62 2.0 Ventilation equipment 1992 11 Eire, Netherlands, USA/CanadaK5 1980 50 3.0 Electronic temperature 1994 25 France, Eire, Sweden

controllers & sensorsK6b 1980 35 3.0 Audio equipment 1993 50 Thailand, Malaysia, KenyaK7 1983 7 0.25 Industrial calibration 1989 40 S. Africa, France, IndiaK8 1987 31 3.0 Electronic noise and vibration 1987 70 USA, Korea, Australia

analysis instrumentsK9c 1983 20 1.0 Telecom equipment 1994 50 USA/Canada, Japan, GermanyK10 1979 15 0.6 Electrical machinery 1984 50 USA, Canada, Saudi ArabiaK11 1986 23 2.5 Underwater remotely operated 1990 55 Norway, Singapore, Brazil

vehiclesK12 1992 10 0.5 Industrial electronics 1992 60 Canada, GermanyK13d 1938 150 11.0 Printing/communications 1982 1–2 _K14 1982 45 4.2 Beverage dispensing equipment 1986 80 Italy, Spain, BeneluxK15e 1972 80 1.0 Chemical plant contractor 1989 8 Canada, Saudi Arabia

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Table 2. Continued

Year No. of Turnover Products First Export Top Export MarketsEstablished Employees (£ m) Export Ratio (%)

Knowledge-intensiveCompany

T1 1977 46 1.7 Varied giftware 1979 75 Australia, USAT2f 1979/1995 21 1.8 Beer 1990 3 Canada, USA, SpainT3 1972 30 1.3 Household textiles 1974 20 Eire, Netherlands, AustraliaT4 1975 150 1.0 Shoe components/industrial tapes 1992 55 India, Canada, Hong KongT5g 1961/1995 6 0.3 Machine and hand loom carpets 1966 40 Switzerland, Austria, NorwayT6 1983 100 4.8 Part-bake bread 1985 40 Eire, Portugal, EgyptT7 1986 14 0.6 Confectionery 1991 20 Australia, Germany, DenmarkT8 1986 70 2.1 Equipment/furniture for disabled 1989 30 Germany, USA, NetherlandsT9 1972 50 4.0 Pet food 1980 25 EireT10h 1994 25 1.2 Marmalades, jams 1994 30 Denmark, USA, CanadaT11j 1892/1983 35 5.0 Processed fish 1991 63 France, Germany, NetherlandsT12k 1980 150 8.0 Socks 1980 15 Sweden, USA, NorwayT13 1972 6 >0.5 Assorted novelties 1991 10 Germany, Belgium, NetherlandsT14 1990 150 6.0 Yarn 1990 18 Eire, Sweden, GermanyT15 1983 150 4.5 Food containers 1990 20 Eire, Cyprus, France

Notes: aFirms operating in an industry traditionally perceived as traditional, but with knowledge-intensive products and processes; bMBO in 1985;cMBO in 1993; dMBO in 1990; eThis is a service oriented firm, but gets involved with technical products via its sister company; fCompany went intoliquidation in 1995 but was purchased shortly afterwards; gCompany went into receivership in 1994 and was purchased from receivers in 1995;hMBO in 1994; jCompany in decline and had plans to go into liquidation, and so 1983 was effectively a relaunch year for this family-owned business;kMBO in 1990.

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Typically, ownership and/or management changes led to a revitalization andreorientation of business activities including, in some cases, rapid and dedicatedinternationalization among what might be described as ‘born-again’ global firms.In comparison, there was evidence that ‘traditional’ firms (including some family-owned ones) tended to be generally less aggressive than others in pursuinggrowth strategies and also appeared to be rather more reluctant to internation-alize (cases T3, T9, T11 and T14). Fear of losing control of the business throughany involvement by outside investors and the loss of ‘lifestyle’ benefits wereamong the factors that limited growth, whether at home or abroad.

In both groups there were some examples of firms that had been content tofocus on the domestic market for a lengthy period, but that had then inter-nationalized quite aggressively. The motivation for such behaviour oftenappeared to reflect a response to a ‘critical’ incident or event that triggered asubsequent chain of events. As one CEO stated:

we were more than happy just to get company X’s business in the UK, but it was reallywhen they recommended us to an affiliate that exports really took off. Since then wehave had numerous referrals to other overseas associates. (CEO, case K1)

Product/Market StrategiesWith respect to the components of business strategy, there were close inter-relationships identified between product and market strategies in the evolutionof firms, regardless of whether they had adopted a domestic or internationalfocus. In numerous cases, new product development was an essential prerequi-site to internationalization. For example, among ‘knowledge-intensive’ firms,case K5 had introduced three distinct electronic control products/services sinceits establishment; but it was not until the second of these was launched (whichthe company ‘hoped would be an “international” product’) that internationalbusiness was feasible. This product was largely marketed in Europe where theSales Manager at the time had contacts and knew the market; whereas a thirdproduct, targeted at the computer industry, was launched in the USA. Anothercompany, case K11, focused upon the global oil and gas industry after its MBOin 1990. It entered into a series of related acquisitions to widen its product rangeand strengthen its market position internationally. These acquisitions had apositive impact on distribution structures and strategies in overseas markets aswell. Among ‘traditional’ firms, adaptation of existing products for new marketswas much more the norm.

The product range was also a critical factor in both business expansion andretrenchment. For example, case K7, which had an advanced electronics-basedindustrial calibration product at the time of launch, found itself overtaken bylower priced, higher specified offerings from competitors and international salesdwindled away. Similarly, competition from low-cost economies to supply a basic,albeit design-intensive, product led to the decline of case T5, which producedmachine and hand loom carpets. In contrast, the rapid international expansionexperienced by cases K1, K6 and K9 can be clearly traced to a very strongcommitment to product innovation and the development and commercialization


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of ‘state of the art’ electronic systems. In the case of K6, an audio equipmentmanufacturer, these interrelationships are shown very clearly in the CEO’sanalysis of major issues for the firm’s development. In summary these included:

• the development of ‘leading edge’ products to enable the company toexpand from its existing markets into new countries and regions;

• related diversification into systems that can be incorporated into othercompanies’ products; and,

• the appointment and use of ‘associates’ in particular overseas markets tomonitor developments, identify opportunities and maintain contacts withdecision makers.

Another CEO highlighted the interrelationship between product/market andoverall business strategies:

From day one I realised that the Irish market was too small and that the UK Marketcould not sustain us for long. So in designing the product, I needed to think about inter-national markets from the outset. (CEO, case K14)

Operations StrategiesAnother emerging theme was the impact of process innovation on internationalorientation. In a number of cases the acquisition of new process technology hadencouraged, or even required, companies to review and revise their strategicdirection and market focus. In some cases this propelled firms into internationalmarkets, in others it merely accelerated the process. In the case of K14, aproducer of beverage dispensing equipment, the development of a new manu-facturing process and the in-house design of production equipment by theowner/manager was central to the company’s domestic and international expan-sion.

The decision to purchase ‘state of the art’ equipment by the management ofK6 was driven by a desire to improve competitiveness in the home market.However, this investment could not be justified without an expansion into inter-national markets. Case T8, which manufactures equipment and furniture for thedisabled, had also recently invested in new equipment to improve its domesticand international competitiveness. It was envisaged that this investment shouldenable the firm to exploit new market segments at home and abroad in the future.The CEO observed:

we couldn’t have even begun to consider spending a fortune on this equipment withoutthe French and German business. Sales in the UK market just would not have justifiedor supported this expenditure. However, the beauty of having this kit is that also makesus much more competitive in the home market and our quality control has risen too.(CEO, case T8)

Business Strategy and InternationalizationThe small size of the UK market for ‘niche’ products provided a stronger impetusto internationalize among ‘knowledge-intensive’ firms. In many cases, firms’offerings had been developed for international markets and management had a‘global’ vision from the outset. In contrast, ‘traditional’ firms tended to have a


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domestic focus and overseas activity had often ‘evolved’ in a reactive manner dueto unsolicited enquiries, or difficulties in the home market.

Product Characteristics and Market OpportunitiesThe background to internationalization and the motivating factors were quitediverse. Given the nature of the niche products and limited opportunities in theUK market, an international orientation was a fundamental component ofbusiness strategy for some firms from the outset. This was notably the case amongmany of the ‘knowledge-intensive’ firms (cases K1, K2, K8, K11, K12 and K14),although not all of them initiated overseas activities immediately. Cases K2 (anelectrical transformer manufacturer) and K11 are particularly interesting, insofaras the UK market only became a target after more promising opportunities hadbeen exploited abroad. In contrast, many ‘traditional’ firms tended to have adomestic market orientation at the outset (cases T2, T4, T7, T9, T11, T13) andonly began to focus on international markets at a later date. Typically, thisoccurred when they were experiencing adverse trading conditions in the domesticmarket such as a decline in sales, a downturn in the economy or increasedcompetition (cases T3, T4, T7). It was particularly interesting to note that in somecases (T2, T5, T11) it took a ‘near death’ experience to persuade firms to look tointernational markets.

New Product Development ProcessSector and product characteristics are probably the most significant factors inexplaining proactive or reactive new market development approaches. Thestarting point for marketing strategy is the product offering and hence the newproduct development process (NPD) is critical. For many of the ‘knowledge-intensive’ firms, NPD was focused upon products that could be marketed inter-nationally. For example, cases K1, K6, K8, K9 and K11 sought to design newofferings suitable for key international markets, rather than for the domesticmarket. In contrast, the ‘traditional’ companies tended to design products for thehome market first and then seek to adapt them for overseas markets in terms ofproduct specifications, ingredients, labelling, etc. Thus, moves to internationalmarkets followed domestic activity. This was most notable among food sectorfirms in the study (cases T2, T6, T7, T9 and T11).

Reactive StrategiesReceipt of an unsolicited enquiry or order sometimes provided the initial impetusto internationalization. This was particularly true for many of the ‘traditional’firms, (cases T2, T3, T4, T5, T7, T12, T13 and T14), but was also the trigger forsome of the ‘knowledge-intensive’ companies (cases K10, K13 and K15). Never-theless, the latter were generally proactive in seeking out international oppor-tunities, tended to employ formal screening procedures and undertook moresystematic research.


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Role of the Decision MakerThe export development literature suggests that firms with greater exposure tothe international environment, ranging from key decision makers having lived orworked abroad to experience of inward internationalization via imports etc., aremore likely to be receptive to stimuli and outward business activities (see forexample Aaby and Slater, 1989; Miesenbock, 1988; Reuber and Fisher, 1997).Within the sample, there were many instances where executives had priorinternational experience that had often been gained with previous employers. Inone case, the recruitment of a sales manager with an extensive knowledge ofEuropean markets led to targeting of these markets. However, even whenindividuals had no such prior experience, their general knowledge and under-standing of industries in which they operated often created a high level ofinternational awareness. This was most evident among the key decision makersof ‘knowledge-intensive’ firms operating in global industries such as electronics,oil or gas. Nevertheless, it was also apparent among some of the ‘traditional’firms, especially the food and drink sector cases, where the UK’s membership ofthe European Union (and the impact of the Common Agricultural Policy)created a widespread awareness of international business. In addition, the majorEuropean food shows were widely known and supported throughout theindustry.

Initial Market Selection and Entry StrategiesThe market selection and entry strategies of ‘ knowledge-intensive’ firms weremore likely to be influenced by relationships with clients and global industrytrends, rather than by geographic or ‘psychological’ proximity of overseasmarkets. There was less evidence of network relationships among ‘traditional’firms, some of which had gravitated towards ‘psychic’ markets. Exporting modeswere prevalent in both groups as initial market entry strategies. In terms ofcountry choice, internationalization ‘stage’ models focus upon ‘psychic distance’as an important determinant of the initial market selection decision. However,the findings reveal that this was a determining factor in only a few cases andsimply one of a series of contributory factors for several other firms. In contrast,other factors appeared to exert a fairly strong influence on country selectiondecisions.

First, a significant number of ‘knowledge-intensive’ firms were influenced byglobal industry trends and gravitated towards ‘lead’ market/s in their particularfield. Typically, the USA offered these firms the greatest prospects but other keymarkets included European, Scandinavian and Asian countries. For those elec-tronic and info-tech firms proactively seeking export markets, the USA was anobvious choice, but in some cases Asian markets were targeted after participationin a trade mission. A good example from a different industry is that of case K14,which manufactures dispensing equipment for soft drinks or beer that is used infast food outlets and/or licensed premises. It initially targeted Benelux andScandinavian countries for beer applications, as these were the home base oflarge players in the industry such as Carlsberg, Heineken and Stella Artois. Theyalso targeted Australia to establish relationships with Fosters Brewery, which was


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itself internationalizing rapidly at the time. The USA, home of McDonald’s andother fast food giants, was the initial target for soft drink applications.

Second, in some cases, ‘client followership’ was an important factor in theinitial market selection decision. Existing contacts with UK clients sometimes ledto export opportunities elsewhere. For example, case K1 signed deals with Xerox,Canon and Sharp in the UK, which led to new business abroad via UK clients’international customer or dealer networks. Similarly, case K7 approached UKcontacts and obtained permission to approach their overseas agents or distribu-tors; this led to receipt of a first export order from South Africa. There were alsoseveral cases where referrals by a client to a third party led to new exportbusiness. As will be discussed hereafter, client followership was also a prevalentinfluence on subsequent internationalization decisions as clients in the firstexport market often provided leads in other markets.

Third, in at least two cases, decision makers’ pre-existing contacts gained froma prior employment, led directly to a first export order. Cases K2 and K12 bothbegan exporting at start-up because the CEOs obtained orders from overseasclients of a firm they had worked in before. Case K2 also entered a subsequentexport market in the same way. Together with client followership, this presentsstrong evidence of the influence of network connections on initial export decisionand subsequent internationalization.

Fourth, and peculiar to a number of Northern Ireland firms (cases T3, T6 andT9) was a decision to enter what is technically an export market (Republic ofIreland) rather than expand further in the UK. The decision was made becauseCEOs perceived the Irish marketplace to be less competitive than the UK, thuspresenting greater opportunities for growth. In all of these cases, products weredistributed via Irish retailers who had an established presence in NorthernIreland and were already clients of the firms. Thus, knowledge of the market andnetwork connections were also contributory factors.

In respect of choice of entry modes and methods of distribution in the initialexport market, the vast majority of firms used agents or distributors, a few solddirectly to end users and in a number of cases others sold directly to wholesalebuyers or large retail multiples. Within the ‘knowledge-intensive’ sector, anumber of firms were able to adopt their clients’ established distribution channels(for example cases K1 and K5). The tendency was to retain the original methodof distribution to service the market. Nevertheless, there were instances wherefirms changed their initial distribution method at a fairly early stage, havingrecognized that the original choice was not appropriate for the circumstances.

Subsequent Business Strategy and InternationalizationDifferences were observed in the evolution of business strategy and theprocesses, patterns and pace of internationalization of ‘knowledge-intensive’ and‘traditional’ firms. The former expanded rapidly into a greater number ofmarkets and tended to adopt a more proactive approach to internationalization.They were also more likely to change methods of distribution via licensing agree-ments, strategic alliances or establishing overseas facilities. ‘Traditional’ firmsgenerally adopted a more incremental and reactive approach to international


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expansion. While ‘knowledge-intensive’ firms appeared to be developing newmarkets in a systematic manner based on established decision-making criteria,there was evidence that ‘traditional’ firms continued to react to new overseasopportunities in an ad hoc manner.

Subsequent Pace and Patterns of InternationalizationThere were marked differences in the pace of internationalization between thegroups. Many ‘knowledge-intensive’ firms had established a significant networkof international distributors in a very short space of time. For example, case K1currently has over 40 distributors worldwide; cases K8 and K14 both have morethan 30 international distributors and cases K2, K5, K7 and K9 have agents ordistributors in between 12 and 20 countries. In contrast, ‘traditional’ firms had,in the main, entered fewer overseas markets (typically, 5 or 6), over a longerperiod of time. In some cases, these latter firms had been quite aggressive inseeking overseas agents or distributors, but evidence suggests that this reflecteda scattergun approach to international markets. In other cases, a degree ofdesperation to obtain urgently needed new business from any source appearedto be a major motivating factor. Targeting ‘lead’ markets, such as the USA, wasa dominant feature in the internationalization patterns of ‘knowledge-intensive’firms, whereas ‘traditional’ firms were more likely to continue entering geo-graphically or psychologically ‘close’ countries.

Subsequent Market Entry StrategiesAn assumption in the literature is that companies have choices in the method ofdistribution/mode of entry (Anderson and Coughlan, 1987; Johanson andVahlne, 1992; Benito and Welch, 1994). However, evidence suggests that theseoptions were often limited to direct and indirect exporting at the outset, but thatas firms developed and sought to gain more business, alternatives began to beconsidered. This was most apparent within the ‘knowledge-intensive’ group,where some of the firms had used alternative entry modes for particular markets.For example, case K8 signed a strategic alliance in the USA with HewlettPackard, where the latter provided R&D funding in exchange for the rights tomanufacture under licence in the USA. It also has a licensee in China and badgelabelling deals in Japan and the USA. Case K12 entered into a joint venture withan overseas company. Case K14 has a licensing agreement with a US firm thatmanufactures and distributes the product throughout North America but estab-lished a joint venture in Australia. Cases K3 and K10 both established small-scaleoverseas production and marketing facilities. The management of case K11recognized the need for direct representation in Russia and the USA, but couldnot afford a sales office. The solution was to employ market representatives whoare paid a salary plus commission, but work from home to save office costs. CasesK6 and K9 both employ ‘associates’ in the Asia Pacific region that prospectmarkets, generate enquiries and offer some customer support.

In contrast, among most of the ‘traditional’ firms, any changes in distributiontended to be at the agent/distributor/direct selling level, with firms choosing anappropriate method for a particular country. For example, case T2, a brewery,


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sells on a direct basis to an agent in Spain, but via a food and drink agency inHolland. Case T11, a fish processor, tends to sell to wholesale buyers in its targetEuropean markets, except Spain where it has three agents because of a very frag-mented market. However, none of the traditional firms had engaged in otherdistributive arrangements, or indicated their intention of doing so in the future.

Subsequent Business StrategiesIt is evident from the preceding discussion that changes in strategic direction, inmany cases linked to changes in ownership and/or management, had an influenceon business strategies. The early decisions taken set in motion a subsequent seriesof events involving a variety of strategic areas of business. These changes wereinevitably more important among the ‘knowledge-intensive’ firms given theirrapid growth and internationalization. Within some of these firms, venturecapital finance and an influx of expertise (and a trend to greater formality inplanning and strategy) supported acquisition as well as organic growth. Suchtakeovers in turn provided additional human resources, including technical andmarketing capabilities, assets and intellectual property rights, and new productscatering for new market segments and requiring different distribution channels.

In one ‘knowledge-intensive’ company (K8), which makes electronic noise andvibration analysis instruments, the aim was to supply a niche product to globalmarkets, with a phased roll-out to Europe, USA and Asia-Pacific via agents anddistributors. However, within 10 years of establishment it had become obviousthat the strategy of global spread and growth required support by newproducts/services and/or new market segments if the company was to survive. Itwas also evident that new modes of market entry would need to be considered.At the time of interview, two acquisitions were pending in the UK and USA, thelatter identified from continuing network relations. Outside equity interests wereinfluential in this strategic redirection.

Among traditional firms, strategic change tended to be slower-paced and moreevolutionary in nature, once a decision on a particular strategic direction wastaken. The critical decision was commonly to develop/launch a new product,sometimes requiring significant investment in factory and processing facilities orin new product development (e.g. T2 formed a consortium with three smallbrewers to redesign a beer bottle for their joint use). However, the influences onthese product decisions were quite different. In T2, a new owner, who bought thefirm from the receivers, initiated the NPD process. In another firm (T7), whichhad a history in ice-cream retailing and small-scale production, the new productopportunity came by chance. The company was approached by a local distilleryto produce whisky-flavoured fudge for sale in its factory shop. This led T7 tolaunch a range of such products that virtually required the firm to go inter-national since the regional market was small and linked to tourism. In both ofthese cases a critical ‘event’ resulted in a fundamental strategic reorientation ofthe business.


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Discussion

The objective of this study was to explore the interrelationships between smallfirms’ overall business strategies and internationalization; and to make compari-sons between the strategic behaviour of ‘knowledge-intensive’ and ‘traditional’firms. In this way it was aimed to identify new issues and perhaps to see the begin-nings of a new research agenda. The tentative evidence from this 30-companystudy is that there is much to be gained from this approach.

Figure 1, derived from this exploratory research and supported by the extantliterature, provides a diagrammatic representation of the interrelationshipsbetween business strategy and internationalization. Presentationally, this iscomplicated by the wide variety of interactions that may exist, but environmentalfactors appear to be particularly important in initial business development. Theseenvironmental influences are shown in the diagram as a form of continuum, sinceMBOs, for example, are a mixture of internal and external effects (when externalequity is involved). It is evident from the current research (and many earlierstudies) that network relationships are important in internationalization andthese are represented in the diagram. In small firms particularly, there will benetwork influences in a range of areas of activity within and outside the firm.

Many of the strategic influences and thrusts may be common in the early stagesof corporate development. In particular, the reorientation of business activities


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EnvironmentalInfluences:

Business Strategy

FunctionalStrategies:

Internal

Finance

Human Resources

Operations

Marketing

External

firm resourcesdecision-maker characteristics

management competencies

favourable/unfavourable domesticmarket conditions

favourable/unfavourableinternational market conditions

industry/sector trendsglobalization trends

Organic growth Acquisition growth

Products Markets

Internationalization

Formal relationships

Network relationships

Notes:

Figure 1. Business Strategy and Internationalization Interrelationships

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as a result of ownership or managerial change (which was the initial driver formore active business development in many of the sample firms), plus newproduct development and process innovations, were of major significance.

Earlier work (for example Berry, 1998; Bracker et al., 1988; Wright et al., 1992)has shown the importance of strategic management practices, of externaladvisors and directors, and of MBOs in redirecting and stimulating businessdevelopment. This study has shown that such changes lead to international aswell as domestic growth. Family ownership, by comparison, was linked to a morecautious and reluctant approach to internationalization. Although early growthwas strongly influenced by internal and external environmental factors, as firmsexpand (especially using the acquisition route), complex interrelationshipsemerge which may both influence and be influenced by internationalization.There were also close relationships between the nature of product offerings andthe development of both domestic and international market opportunities in theevolution of the sample firms. Furthermore, product and process innovationappeared to provide an important stimulus to overseas expansion.

Generalizing from some of the ‘knowledge-intensive’ firms, the international-ization process may emanate from a statement of corporate strategy, especiallywhere external parties are providing financial support. Typically this wouldencompass marketing objectives including internationalization. The outworkingof such a strategy clearly has implications for the functional areas of business;and each of the latter may represent either barriers to growth (e.g. managerialdeficiencies or capacity shortages) or stimuli (e.g. new management appoint-ments or tooling and design investment). The implementation of initial inter-nationalization strategies may thus see an iterative process of learning and gapfilling in other areas, if functions such as human resources and operations are tosupport and reinforce the process.

For companies expanding through acquisitions, however, a takeover mayfurther influence the process, affecting internationalization directly and also indi-rectly through the impact on other business functions. In terms of direct effects,Case K11 provides an interesting illustration. The initial entry mode used by thecompany involved the establishment of distributors in a range of internationalmarkets as part of a ‘scattergun policy’ to tap small worldwide niche markets.However, three acquisitions introduced high-value products with significantcustomization requirements. As a consequence, the distribution emphasischanged from distributors only to a mix of distributors and direct selling (in theUK, USA and Russia). In the latter two markets a cost minimizing approach waspursued with the employment of salaried sales persons working from home. Inrespect of indirect effects, some of the features of the products from the acquisi-tions were dated (e.g. control electronics). Since the company did not have asignificant in-house R&D capability, it sought a link with a German university tomake a joint proposal to the European Commission for R&D support.

While some of the findings of the present research indicate threads ofcommonality, others indicate some clear differences between the businessstrategies and internationalization processes of ‘knowledge-intensive’ and‘traditional’ manufacturing firms. ‘Traditional’ firms followed a cautious,


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incremental approach both domestically and internationally, influenced in partby the industry sectors in which they operated, as well as by managerial attitudes.Strategic thinking and planning was more strongly in evidence within the ‘know-ledge-intensive’ firms, commonly supported by external advisors and non-executive directors (and linked to external finance). Differences between thetwo groups were evident in levels of commitment to internationalization, theextent to which international strategies are planned, and regarding the methodsand tactics employed. These differences are synthesized in Table 3. Among


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Table 3. Internationalization Strategies

Knowledge-intensive Firms Traditional Firms

Motivation Proactive ReactiveEvidence of strategic thinking Adverse domestic marketand planning conditions‘Niche’ offerings/small home Unsolicited/enquiries ordersmarket ‘Reluctant’ managementInternational from inception Cost of new productionActive search processes ‘force’ export ‘Committed’ management initiation

Patterns Concurrent IncrementalNear-simultaneous domestic Domestice expansion firstand export expansion(In some cases exportingpreceded any domesticmarket activity)Lead markets ‘Psychic’ marketsStrong evidence of networks Limited evidence of networks

Pace Rapid GradualFast internationalization Slow internationalization(large number of export (small number of exportmarkets) markets)Many markets at once Single market at a timeNew product development of Adaptation of existing offering‘global’ offerings

Method of Flexible ConventionalDistribution/Entry Use of agents or distributors, Use of agents/distributors or

but also evidence of wholesalersintegration with client’s Direct to customerschannels, use of licensing, jointventures, overseas production,etc.

Subsequent Structured Ad hocInternationalization Evidence of a planned Evidence of continued reactive

approach to international behaviour to exportexpansion opportunitiesExpansion of networks Unrelated new customers

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‘knowledge-intensive’ manufacturing firms, findings include an internationalorientation from inception; a new product development process focusing uponthe requirements of international markets; a gravitation towards lead markets inthe particular industry sector; a planned and structured approach to overseasmarkets; rapid internationalization; and more variety in market servicing modes.These provide support for other recent work on the ‘born global’ phenomenon.

In addition, there are marked similarities with findings emanating from recentresearch into knowledge-intensive service firms (Knight, 1999). This linkage isimportant as it recognizes that knowledge-intensity is not restricted to particularsectors or to service-intensive firms, but is increasingly important to many firms.Indeed, it can be argued that knowledge-intensity and the degree to which a firmpossesses it, represents a significant competitive advantage for the firm in bothdomestic and international markets.

Areas for Further ResearchBased on the findings emanating from the exploratory research undertaken inthis study, future research could usefully focus on further investigation of anumber of key issues (where the approach is similar to McDougall et al., 1994;Coviello and Munro, 1997). Namely:

• What additional factors influence firms’ initial business strategies, and howdo management and ownership factors interact with external environmentalvariables in business growth?

• What are the critical strategic choices made by small firms in their earlygrowth years, and to what extent are these strategic decisions interrelated?

• What is the role of internationalization in the early growth of small firms,and in what ways do other strategic decisions interact with and impact uponthe internationalization decision?

• Does organic as compared with acquisition growth influence the balancebetween domestic and international expansion?

• How does the firm’s ‘state’ of internationalization and its internationalgrowth proceed over time in comparison with its domestic growth?

• What additional factors encourage firms to internationalize rapidly after along period during which they have focused on the domestic market?

The above questions derive from the results of the present exploratory investi-gation and now require further study. In the process of undertaking this furtherresearch, there is a need to re-examine extant internationalization models andframeworks. The results for ‘traditional’ firms in the sample tend to offer somesupport for ‘stages’ models of internationalization, but internal and externalenvironmental influences are important too. For ‘knowledge-intensive’ firms, nosingle model seems to have sufficient explanatory power on its own, a conclusionwhich supports Coviello and McAuley (1999).

Given the holistic perspective on small firms’ strategies and internationaliza-tion that is suggested here, the resource-based perspective may provide a usefulframework to integrate competing conceptualizations (Bell et al., 1998). Its basicpremise is that it is the firm’s ability to generate and build or leverage resources


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and competencies that is the key to competitive advantage and organizationalsurvival (Barney, 1991; Grant, 1991; Wernerfelt, 1984). Small firms will responddifferently in their efforts to overcome resource/competence deficiencies in areassuch as finance and human resources, in both a domestic and internationalcontext. Such responses will also be ‘contingent’ on the levels of resources thefirm has at its disposal (Reid, 1983; Woodcock et al., 1994; Yeoh and Jeong, 1995),particularly in respect to international expansion where risks are likely to behigher and the human, financial and knowledge resource requirements greater.Thus, the decision to internationalize incrementally or rapidly and whether toadopt atomistic or networked approaches are not only based on perceptions ofopportunity, but also upon the resources the firm has at its disposal or canleverage from external sources.

In an internationalization context, the mode of entry chosen will be that whichfacilitates a competitive position in the particular overseas market, subject to theconstraints imposed by resource shortages of various types. It may be simply amechanism by which to exploit the true competencies of the firm (e.g. uniqueproducts, brand names, market segmentation skills); or it may represent acompetence in its own right. The resource-based perspective also assumes thecoordinated deployment of assets and capabilities in creating, producing andmarketing products. Technologies, product strategies, markets and marketing,and competitive environments are interdependent and form a positive feedbacksystem. As with contingency approaches to internationalization, this arguesagainst a consideration of country market choice or mode of entry as indepen-dent decisions. Moreover, particularly in knowledge-intensive sectors, a numberof key markets may be pursued concurrently and a variety of entry strategies tothese markets may need to be considered simultaneously.

Implications for Public Policy in Support of Small FirmInternationalizationThe results have implications for policy makers charged with supporting thedevelopment of the small business sector. First, considerable policy enthusiasmis currently being directed in many countries towards developing a ‘knowledgeeconomy’. Naturally, much of the focus is on new technologies (such as the infor-mation technology and biotechnology sectors); however, as indicated by thepresent research, knowledge-intensity is not restricted to these sectors, but is alsoinfiltrating more traditional sectors. In consequence, policy makers should recog-nize that ‘knowledge-intensive’ firms may inhabit or be emerging in other (moretraditional) sectors.

Second, evidence indicates that ‘knowledge-intensive’ firms develop muchmore dynamically than their ‘traditional’ counterparts. In these circumstances,their support needs are much more immediate, with high levels of assistance mostlikely to be required from the outset. This applies to various aspects of govern-ment business policy in support of small ‘knowledge-intensive’ firms and inproviding assistance to enable them to build or leverage their resource base.However, it is particularly important in respect to internationalization supportprogrammes that have, traditionally, assumed an incremental approach to the


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process. If, as the evidence suggests, international and domestic expansion isvirtually concurrent (or, if the former actually preceded the latter), then thedesign and delivery of such offerings must be fundamentally reconsidered.Moreover, given the interrelationship between business strategy and inter-nationalization, it may also be argued that such programmes should place ahigher emphasis on management development and strategic issues rather thanfocusing solely on the international dimension.

Consideration must also be given as to whether or not export support agenciesshould prioritize support for ‘knowledge-intensive’ sectors with greater growthpotential, rather than more ‘traditional’ sectors whose long-term prospects maybe rather limited domestically and internationally. Finally, public policy makersshould recognize that supporting small firm internationalization involves muchmore than merely attempting to stimulate export activity. Measures to supportinward technology transfer and help small firms to develop networks and supply-chain relationships with larger indigenous and international companies locatedin the home market must also be considered.

Conclusion

The findings presented in this comparison of the internationalization processesand patterns of ‘knowledge-intensive’ and ‘traditional’ small UK manufacturingfirms suggest that some important differences exist in respect to overall businessstrategies and approaches to internationalization between these types of firms.They also indicate that strong linkages exist between market focus and strategicdirection. In turn, these findings have implications for theory development in thefield and public policy support for the small business sector, which are outlinedand discussed.

Notes1. The literature commonly distinguishes corporate strategies, which concern vertical

integration and diversification and relate to the scope and boundaries of a firm’s activi-ties, from business strategies.

2. Selection of UK locations was based on proximity of the authors’ home universities.As areas within the United Kingdom, there was no reason to expect different behaviourpatterns by firms, except in the case of Northern Ireland, which borders the Republicof Ireland, a separate country.

3. A number of citations support this assertion both in government reports and inacademic studies such as Crick (1997). It is, however, consistent with the small firmliterature (see for example Storey, 1994).

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JIM BELL is Professor of International Business Entrepreneurship at the Universityof Ulster. His main research interests are in the areas of small firminternationalization and export development. Please address correspondence to:Department of International Business, McGee Campus, University of Ulster,Londonderry. [email: [email protected]]

DAVE CRICK is Professor of Marketing and International Entrepreneurship at theUniversity of Central England. His research interests include export policyfocusing on SMEs. Please address correspondence to: Business School, University of Central England, Perry Barr, Birmingham, B42 2SU. [email: [email protected]]

STEPHEN YOUNG is a Professor within the Strathclyde International BusinessUnit at the University of Strathclyde. His research interests relate to exporting,international business and economic development. Please addresscorrespondence to: Department of Marketing, University of Strathclyde,Cathedral Street, Glasgow, G4 0RQ. [email: [email protected]]


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Company age

Size (no. of employees/sales turnover)

Industry sector

Length of time exporting

Number of export markets

Export ratio (i.e. export sales as a percentage of total sales)

Top 5 export markets and year of entry to each

Company ageSize (no. of employees/sales turnover

Industry sectorLength of time exportingNumber of export markets

Business idea and formation

Decision-makers’ backgrounds and experience(education, work experience, overseas exposure, etc.)

Objectives

Early sales growth

Pre-internationalization experience(e.g. importing, inward technology transfers, foreign contracts, etc.)

Which country?

Context in terms of positive/negative attitudes to internationalization(e.g. previous rejection of opportunity)

Export barriers(e.g. lack of knowledge, limited resources, other impediments)

Export stimuli(e.g. solicited/unsolicited orders, client followership, targeting lead markets)

Internal discussion and deliberation

Size of order/project

Level of commitment (financial, human resources)

Exchange relationships with clients/partners

Views about future at time of order

Management of order/project (e.g. types of decisions taken)

Key decisions relating to internationalizaton(e.g. choice of markets, mode of entry, marketing management decisions)

SizeChanges to entry mode, marketing managment decisions, relations, etc. inexisting markets

Principles in searching/identifying new markets

Decisions to withdraw from export markets or not pursue new opportunities

Product/service decisions and other marketing management issues

Ongoing export problems/barriers to internationalization

Sources of assistance (Government agencies, Chamber of Commerce, other)

Value of these sources (discuss each separately)

Internationalization in relationship to overall business strategy of firm

Changes in structure/organization/staffing as international business evolved

Profile of firm

Pre-internationalization activity

Early internationalization decisions

Subsequent internationalization/business strategy decisions

Repeat for countries 1-n (insequence of entry) and explorechanges in attitudes, motivation,commitment, decision-making

Appendix 1. Interview Schedule

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Internationalisation et stratégie commerciale des petites entreprisesUne étude prospective d’entreprises manufacturières ‘à forte intensité de connais-sances’ et ‘traditionnelles’ au Royaume-Uni – Jim Bell

University of Ulster, Royaume-Uni

Dave Crick

University of Central England, Royaume-Uni

Stephen Young

University of Strathclyde, Royaume-Uni

Cette étude avait pour objectif d’explorer les liens entre les stratégies commercialesglobales des petites entreprises et leurs schémas, processus et rythme d’internationalisa-tion. Une approche qualitative a été adoptée, comportant 30 entretiens en profondeur avecdes décideurs clés de petites entreprises en cours d’internationalisation basées dans 3régions du Royaume-Uni (15 entreprises ‘à forte intensité de connaissances’ et 15 ‘tradi-tionnelles’). Les résultats suggèrent que les politiques commerciales, y compris celles liéesaux changements au niveau de la propriété et/ou de la gestion, avaient une influence impor-tante sur l’orientation internationale de nombreuses entreprises. Il y avait des rapportsétroits entre les politiques en matière de produits et la concentration sur le marché, l’inno-vation au niveau des produits ou des processus donnant souvent une grande impulsion àl’expansion internationale. Toutefois, il existait des différences au niveau des schémas, desprocessus et du rythme de l’internationalisation entre les petites entreprises manufac-turières ‘à forte intensité de connaissances’ et ‘traditionnelles’. Les implications de ces résul-tats sur la stratégie, la politique publique et le développement des théories des entreprisessont discutées et une série de questions sont postulées pour des recherches futures.

Mots clés: internationalisation; ‘à forte intensité de connaissances’; PME; entreprisesmanufacturières ‘traditionnelles’; Royaume-Uni

Internacionalización y estrategia comercial de las pequeñas empresasUn estudio preliminar de las empresas fabriles ‘intensivas en conocimiento’ y‘tradicionales’ en el Reino Unido – Jim Bell

Universidad de Ulster, RU

Dave Crick

Universidad de Inglaterra Central, RU

Stephen Young

Universidad de Strathclyde, RU

El objetivo de este estudio es investigar los vínculos entre las estrategias comercialesgenerales de las pequeñas empresas y sus pautas, procesos y ritmo de internacionalización.


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Se adoptó un enfoque cualitativo, y se hicieron 30 entrevistas a fondo con las personasresponsables de adoptar decisiones en las pequeñas empresas en vías de internacional-izacón en 3 regiones del RU (15 empresas ‘intensivas en conocimiento’ y 15 empresastradicionales). Los resultados indican que las políticas comerciales, incluidas las rela-cionadas con los cambios de propiedad y/o gestión, tenían gran influencia sobre laorientación internacional de muchas empresas. Había estrechos vínculos entre las políti-cas de los productos y el enfoque del mercado, con la innovación del producto o procesosirviendo a menudo de estímulo a la expansión internacional. No obstante, existían difer-encias entre las pautas, procesos y ritmo de internacionalización entre las pequeñasempresas fabriles ‘intensivas en conocimiento’ y las tradicionales. Se discuten las infer-encias de estos resultados de la estrategia empresarial, política pública y desarrollo teóricoy se formula una serie de preguntas indagatorias para una investigación futura.

Palabras claves: internacionalización; ‘intensiva en conocimiento’; PYME; empresasfabriles; Reino Unido

Internationalisierung mittelständischer Betriebe und UnternehmensstrategieEine Forschungsstudie über ‘informationsorientierte’ und ‘traditionelle’ Fertigungs-unternehmen in Großbritannien – Jim Bell

Universität von Ulster, Großbritannien

Dave Crick

Universität von Mittelengland, Großbritannien

Stephen Young

Universität von Strathclyde, Großbritannien

Das Ziel dieser Studie war, die Zusammenhänge zwischen der Gesamtunter-nehmensstrategie mittelständischer Betriebe und ihren Strukturen, Prozessen und demTempo ihrer Internationalisierung zu untersuchen. Zu diesem Zweck wurde eine quali-tative Vorgehensweise angewandt, in deren Rahmen 30 Tiefeninterviews mit wichtigenEntscheidungsträgern der Internationalisierung mittelständischer Betriebe mit Sitz in dreiverschiedenen Regionen Großbritanniens (15 ‘informationsorientierte’ und 15 ‘tradi-tionelle’ Firmen) durchgeführt wurden. Die Ergebnisse der Studie weisen darauf hin, dassdie Unternehmenspolitik, einschließlich der Verfahrensweise bei Inhaber- bzw. Manage-mentwechseln, einen wichtigen Einfluss auf die internationale Orientierung vieler Firmenhat. Es ergaben sich enge Zusammenhänge zwischen Produktpolitik und Marktausrich-tung, wobei Produkt- bzw. Prozessinnovation häufig einen wichtigen Impuls für inter-nationale Expansion lieferte. Es bestanden jedoch Unterschiede in den Strukturen,Prozessen und dem Tempo der Internationalisierung zwischen den ‘informations-orientierten’ und den ‘traditionellen’ Unternehmen der mittelständischen Fertigungsun-ternehmen. Im Rahmen des Artikels werden die Konsequenzen für dieUnternehmensstrategie, Öffentlichkeitspolitik und Theorieentwicklung besprochen undes werden eine Reihe von Fragen für zukünftige weitere Forschungsstudien aufgeworfen.

Schlagwörter: Internationalisierung; ‘informationsorientiert’; Mittelstand; ‘traditionelle’Fertigungsunternehmen; Großbritannien


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Documents

Small Firm Internationalization and Business Strategy