Gilbert Cruz-Carreon Bachelor of Science in Tourism Management Master of Business Administration (MBA)

Transcription

1 The Internationalization Process of Entrepreneurial SMEs in High Technology Niche Market segments BY Gilbert Cruz-Carreon Bachelor of Science in Tourism Management Master of Business Administration (MBA) Brisbane Graduate School of Business Faculty of Business Queensland University of Technology Brisbane Australia Thesis submitted for Master of Business (Research)

2 Abstract: This study seeks to make a theoretical contribution to the rapidly growing field of International Entrepreneurship by investigating the process of internationalization of Small and Medium Enterprises (SMEs). Bell, McNaughton, Young & Crick, (2003) emphasized the need for researchers to re-conceptualize their thinking on the internationalization process of smaller firms. While there has been substantial research done on the small business internationalization and how the participation of these firms in the global economy has fuelled economic growth in a number of countries (Audretsch & Thurik, 2003; Acs, Randall Morck, Shraver & Yeung, 1997; Storey, 1994; Alam & Pacher, 2003), there is tangible evidence that SMEs in Australia are not keeping up with global trends. Studies conducted on Australian firms allude to the following reasons for their constrained presence in international markets: (i) geographic and psychic distance; (ii) costs disadvantage; (iii) overdependence on inward FDI from large foreign multinationals; (iv) a history of inward-looking and narrowly focussed economic development policies of the Australian government. These factors had the combined effect of imbalanced economic growth which was particularly detrimental to the small business sector (Australian Trade Commission, 2002; Maitland & Nicholas, 2002; Alam & Pacher, 2003). Despite the identified obstacles, some Australian SMEs have succeeded in penetrating international markets. This study involved a preliminary qualitative investigation of selected Australian SMEs and their unique internationalization process. Evidence from the case study based investigation will indicate that the respondent firms have leveraged on entrepreneurial qualities to overcome the obstacles and enhance their success in international markets. As such, the internationalization process for these selected firms is seen as an extension of and integral to their entrepreneurial behaviour. 1

3 Using the lenses provided by relevant facets of the entrepreneurship, internationalization and strategy scholarly fields, this exploratory qualitative study, while building the foundation for further empirical research into the internationalization process of SMEs, can serve as a guide to researchers for ascertaining future directions in this emergent field. The findings from the study are intended to contribute to a body of knowledge encompassing the cross-border operations of SMEs. The research also has value from a practical perspective as Australian SMEs can draw from this body of knowledge as they pursue opportunities internationally. Key Words: Internationalization, Entrepreneurship, Small business, Resource Based View, Psychic Proximity, Networks, Entrepreneurial Motivation, Opportunity Recognition, High Technology, Niche Market, Social Construction 2

4 Statement of Original Authorship I hereby declare the work contained in this thesis has not been previously submitted to meet requirements of an award at this or any other higher education institution. To the best of my knowledge and belief, the thesis contains no material previously published or written by another person except where due reference is made. Gilbert Cruz-Carreon 9 August

5 Acknowledgements Statements of acknowledgements often fall short of identifying all those who have contributed and the extent of their respective contributions to the conduct of the research and to the preparation of the thesis. As the research journey is often a long and lonely one, there are many whom you will come across along the way and there are times when one does not even realise how they have helped your progress along the journey. Cognizant of the risk of neglecting to mention some of those who have helped along the way, I would like to make specific mention of some of them. First and foremost, I would like to thank the Lord Almighty for his continued blessings, in particular the resources he has made available and the love, understanding and support of the people around me that has enabled me to undertake this journey. The invaluable support of my immediate family my wife Gertrude and daughter Gabrielle has provided the stability, security and warmth of a home despite all the frustrations and setbacks along the journey. Professor Evan Douglas has patiently supervised the conduct of the research and the preparation of the thesis. Due recognition should also be given to the insights of Associate Professor Susan Dann, Dr Marilyn Healy and Ms Vanessa Ratten during the initial stages of this research. Many other individuals friends, family, colleagues, co-workers, and fellow researchers have been instrumental to bring this publication to fruition. Though I have not made specific mention of these people, let me offer this Irish Blessing for all of them: May the Road rise to meet you May the wind be always at your back May the sun shine warm upon your face May the rain fall soft upon your feet And until we meet again, May God hold you in the palm of His hand 4

6 TABLE OF CONTENTS ABSTRACT: 1 CHAPTER 1: INTRODUCTION SMEs in Today s World Economy World Data on SME Internationalization Australian SME s low participation rates in international trade Focus of the Research Research Questions What this investigation is, and is not, designed to achieve Key Deliverables Thesis Structure 24 CHAPTER 2: LITERATURE REVIEW Introduction The Interplay between Internationalization and Entrepreneurship Issues Pertinent aspects of Entrepreneurship Theory Internationalization theory The Current State of International Entrepreneurship Theory Interrelationships between Theoretical Constructs Entrepreneurial Motivations and International Entrepreneurship Opportunity Recognition and International Entrepreneurship Resource-based view, Internationalization, and the Entrepreneurial Firm Network Theory and International Entrepreneurship The Mediating Effect of Psychic Proximity on the Internationalization Process Australian SME Internationalization The Gaps in the Literature 54 CHAPTER 3: DEVELOPMENT OF THE CONCEPTUAL MODEL Introduction Integrating Elements of the Study Focus on Holistic Process Multiple levels of Analysis Entrepreneurial internationalization behavior Identification of the Theoretical Constructs for the Study Entrepreneurial Motivations Opportunity Recognition Resource Based View and the Entrepreneurial Firm Network Theory Psychic Proximity The Conceptual Model for the Study Summary of Propositions for the Study 84 CHAPTER 4: METHODOLOGY Introduction Overall approach Ontological Assumptions Regarding SMEs 89 5

7 4.1.2 Processual approach to Investigation Promoting Research Quality Limitations of the Methodology Research Design The Unit of Analysis Case Selection Data sources The Case Study Approach In-depth interviews Examination of Historical/Archival data Other Matters of Methodology Analysis and Theory-building Ethics Conclusion 101 CHAPTER 5: PRESENTATION OF RESEARCH RESULTS Introduction Profiles of SMEs investigated Growth and Expansion Motives and Propensities The internationalization experience for each case study Entrepreneurial Qualities revealed in each case study Firm Creation: Transition from an Individual Entrepreneur to the Firm Entrepreneurial Aspects of Internationalization manifested in SMEs Post-hoc Analyses 127 CHAPTER 6: DISCUSSION AND IMPLICATIONS FOR FUTURE RESEARCH Introduction Reviewing the Conceptual Model Discussion on Propositions Contributions and Suggestions for Future Research Implications for Future Research 139 LIST OF REFERENCES 142 6

8 List of Tables Table 1.1: Scope of the Research Table 1.2: Thesis Structure Table 2.1: Cross Theoretical Basis for Morris, et al, Entrepreneurial Business Model Concept Table 2.2: Shared Fundamental Disciplines in Internationalization and Entrepreneurship Table 2.3: Contributing Authors for Theoretical Constructs for this Study Table 4.1: Strategies for Promoting Research Quality Table 4.2: Overview of Data Collection Table 5.1: Summary of Respondent Firm Details Table 5.2: Entrepreneurial Qualities in Internationalization of Selected Cases

9 List of Figures 1.1: Australian SMEs Participation in Exporting : Transitional/Evolutionary Process: From the Individual entrepreneur to the International SME : The Conceptual Model for the Study

10 Chapter 1: Introduction 1.1. SMEs in Today s World Economy World Data on SME Internationalization The latter part of the 20 th century exhibited an interesting reversal of the dominant force in the world economy. Whereas the first three quarters of the century was characterised as a managed economy, dominated by larger, bureaucratic organisations (Audretsch & Thurik, 2003), the last two decades and the early 21 st century saw the emergence of Small and Medium Enterprises (SMEs). There is a range of explanations provided for the occurrence of this phenomenon. One of the earliest explanations was put forth by Joseph Schumpeter (1934, 1942) who wrote about the process of creative destruction involving the constant creation of new ideas by innovative firms that, in turn, disestablishes the positions of stagnant, non-innovating firms. The early 1990s saw the world economy affected by global events such as the twin oil crisis and an observed increase in the self-employment rate (Acs & Audretsch, 1993). These events whilst having a particular impact on the operations of the large firm were at the same time pulling in small entrepreneurial firms from their marginalised economic positions to one where they are recognised as a participant in the overall economic development effort. In 1994, John Naisbitt, author of such bestsellers as Megatrends and The Global Paradox, wrote about the potential economic power of entrepreneurial ventures including SMEs, to quote: The bigger and more open the world economy becomes, the more small and middle-sized companies will dominate. Naisbitt (1994, 17-21), like many others who have attempted to explain the rise of SMEs, presented the following reasons for the observed emergence of the small business sector: 9

11 o Computers and telecommunications o Deregulation and globalization of financial markets o Removal of trade barriers all over the world o Convergence of consumer tastes o Ease and facility of replicating quality o Small firm flexibility in terms of labour force Though it can be said that the above cited factors can affect firms of all sizes, its impact is more pronounced in the SME segment as its inherent flexibility allows small businesses to respond more quickly to the opportunities presented by these developments. In addition, the more recent trend towards outsourcing of non-core activities by larger companies creates further opportunities for SMEs, including the potential for international involvement in cooperation with established multinational firms. Audretsch and Thurik (2003) argue that the gradual demise of the managed economy and the emergence of the entrepreneurial economy is a response to two fundamental aspects of globalisation, i.e., the emergence of low-cost but highly-skilled competitors in Central and Eastern Europe, as well as in Asia; and the telecommunications and microprocessor revolution, that substantially facilitates the shifting of standardised economic activity out of high-cost locations. Undoubtedly, SMEs have risen to prominence, and this further supports what Audretsch and Thurik (2003) refer to as a fundamental shift from a managed economy to an entrepreneurial economy. The two economic structures are contrastingly different the former characterised by stability, continuity and homogeneity, while turbulence, diversity and heterogeneity are central to the latter. For purposes of this study, the new definition of SMEs which took effect on 1 January 2005 in the European Union combining the parameters of employee numbers and financial assets will be used. The relevant categories are provided below: Medium-sized enterprises 50 to 249 employees with assets not exceeding EUR 50 million. 10

12 Small enterprises 10 to 49 employees with assets not exceeding EUR 10 million Micro firms less than 10 employees with assets not exceeding EUR 2 million Recognising that there are variations in the definitions of SMEs among different economies and industry sectors which creates problems of comparability, the UK Bolton Committee (1971) formulated an economic definition, as follows: They had a relatively small share of their market place; They were managed by owners or part-owners in a personalised way, and not through the medium of a formalised management structure; They were independent, in the sense of not forming part of a large enterprise (i.e. non-subsidiary). The combined organisational demographics and economic definitions cited above will be used for this study. These firms constitute a dominant sector in the world economy, accounting for over 95% and up to 99% of the business firms population. In 2003, 99.8% of enterprises in the enlarged EU were SMEs. Firms in this category, bringing with them the entrepreneurial qualities of innovation, risk-taking and proactiveness have now gained world-wide recognition as a key source of dynamism and flexibility in advanced industrialised countries, as well as in emerging and developing economies. The SME sector has contributed significantly in terms of net job creation in OECD countries, consequently making important inputs towards innovation, productivity and economic growth. The UK Bolton Committee has emphasised that the small firm sector is at present, and will remain for the foreseeable future, vigorous enough to fulfill the seedbed function for economic growth (Storey, 1994). Implicit in the increasing importance and visibility of SMEs is the observed increase in the involvement of firms in this category in international business. There is strong evidence that international growth and expansion is a major priority of firms around the world. The explosion of international growth is reflected in the rise of Foreign Direct Investment (FDI) or alternative types of investments in overseas markets that involve managerial control of a production or service enterprise. This international growth is indicated both in the monetary 11

13 value of transactions and the number companies with international operations. From around US$60 billion of new investment in 1985, this topped US$800 billion by 1998 (United Nations, 2003) and this burgeoning trend has continued well into the 21 st century. This study is about international entrepreneurship. Since the foundational work of Oviatt & McDougall (1994), much has been published on the various aspects and dimensions of this emergent field a field that draws from the broader, more established disciplines of international business and entrepreneurship (Zahra & George, 2002). These authors defined International Entrepreneurship as the process of creatively discovering and exploiting opportunities that lie outside a firm s domestic markets in the pursuit of competitive advantage. In coming up with this definition, Zahra and George have examined previous efforts by other authors at defining this phenomenon, among others the work of McDougall (1989), Giamartino, McDougall and Bird (1993), Oviatt and McDougall (1994), Wright and Ricks (1994), and McDougall and Oviatt (2000). The early authors within the emergent field of international entrepreneurship have drawn predominantly from the international business literature (Casson, 1982; Oviatt & McDougall, 1994; Shane & Venkataraman, 2000). Considering the assertion by a number of researchers that the scholarship of international entrepreneurship is positioned at the intersection between international business and entrepreneurship, it is a significant concern that there still remains the need for more cross-fertilization between the two arenas. More specifically, there needs to be more input from the entrepreneurship field. Jones and Coviello (2005) assert that research specific to international entrepreneurship requires a fresh research lens to better understand how firms develop competitive advantage through entrepreneurial behaviour. Despite the advances towards defining international entrepreneurship, there is still concern that the domain of this phenomenon remains vague. Other works such as that by Bell, McNaughton, Young and Crick (2003) have cited the lack of an integrative model for small firm internationalization. Still other researchers have identified gaps on more specific aspects in the investigation of international entrepreneurship, such as the use of network relationships to pursue foreign market opportunities and conduct international marketing activities (Coviello & Munro, 1996; Etemad & Wright, 2003). 12

14 The study is specifically concerned with the stream of international entrepreneurship that focuses on small business internationalization. Though the growth of SMEs is now considered as crucial to a nation s economic development and well-being (Coviello & Munro, 1995; OECD, 2003), this development is not always a matter of choice by the individual firm. The global business environment has evolved dramatically in the past decade. What we knew as competition in international markets being dominated by the larger, more established firms has undergone considerable upheavals during this period (Etemad & Wright, 2003). The drivers of globalization are continuously dismantling the barriers, geographic or otherwise, which segmented the competitive environment of small and large firms. Firms of all sizes now share a common competitive space (Etemad, 1999; Dana, et al and 2001). As a consequence, it is increasingly difficult for independent SMEs to survive unless they become internationally competitive whether or not they operate in international markets (Etemad, 2003). Domestic markets are becoming integral parts of a broader, global whole. As a result, internationally oriented entrepreneurs can now view a much broader range of opportunities and competitive modes, without the constraints of national boundaries. Inherent in this ongoing process of global environment integration are new opportunities and formidable new challenges facing entrepreneurs and emerging businesses. It is therefore apparent for SMEs that competing globally is not a mere option, but an economic imperative. This trend is not only expected to create an extra-ordinary competitive environment for all economies (Rutashobya & Jaensson, 2004) but also has implications on the process of internationalization that SMEs undergo. These aforementioned developments highlight the importance of understanding the dynamic, interrelated processes that these SMEs undergo in order to maintain a competitive edge in the current global market place Australian SME s low participation rates in international trade Australia, however, presents a contradiction to indicative trends around the world. It is a wealthy, developed resource-rich nation with few large indigenous multinationals. The resulting limited scale of outward FDI contrasts sharply with Australia s long-term dependence on foreign firms and technology (Maitland & Nicholas, 2002). Estimates from 13

15 the Australian Bureau of Statistics indicate that about 25,000 businesses across Australia exported in 2000/01 a mere 4% of all businesses in the country. Although the proportion varies among different firm size categories, amongst SMEs this proportion is well below that of most European countries and Canada, but comparable with the USA (AUSTRADE, 2001). More recent data from the Australian Trade Commission, however, indicate that Australian SME participation rates in international trade are growing. According to the May 2001 Yellow Pages Business Index, 21% of Australian SMEs are involved in international business activities (Harcourt, 2001). It must be understood, though, that this performance still fades in comparison to what other industrialised nations have experienced. This is apparent in the Australian Trade Commission (2001) data shown in Figure 1 below. The indication is that for most of the industrialised economies accounted for in the data, more than a third of the total SMEs (ranging from 34%- Spain to 68% - Austria) are involved in export trade. These empirical observations indicate that Australian SMEs face significant and tangible barriers to their penetration of international markets. For economies like Australia, one of the most important implications of globalization is that comparative advantage shifts away from traditional factors of production like land, labour and capital to knowledge-based resources. Consequently, it will be the ability to create, access and commercialize knowledge on a global context that will form the basis of the SME s competitiveness. As Alam and Pacher (2003) note, significant structural changes in the Australian economy during the last 15 years reflect a fundamental shift in terms of support for the small business sector. Being an open and flexible economy, integrated into the key global markets of Asia, America and Europe, Australia has generally kept up with global trends. Such integration is reflected in economic reform measures, such as lower tariffs, financial de-regulation, and labour market and tax reforms. Together with the growing convergence of markets around the world, these reforms have created increased demands and challenges for Australian firms, particularly for small businesses. 14

16 FIGURE 1.1: Australia SMEs participation in Exporting Source: Austrade, 2001, compiled from: ABS, Grant Hattan & Associates and the US Bureau of the Census, 1999, Canadian Bankers Association, 1999 Similar to a growing number of economies, SMEs play a significant role in the Australian economy. There are signs that SMEs have increased their involvement in the global economy within the last five years. The Australian Bureau of Statistics (ABS) estimates that there are around 42,000 exporting businesses today, compared to around 25,000 at the beginning of the decade and even fewer before that (AUSTRADE, 2007). The SME sector accounts for 96.6% of all business operations in the private non-agriculture sector and contributes 56% of private sector employment ( Recognising its potential for contributing to economic development, Australian federal and state and governments have taken definitive steps to grow the SME sector and increase its participation in international markets (AUSTRADE, 2001). A Price Waterhouse Coopers survey of 395 mid-sized Australian firms in March 2004 revealed that there is increasing business confidence and propensity to engage in international activities among SMEs. More specific indications are that medium size businesses are increasing their share of the global action relative to large businesses; and secondly, that globalisation is providing more 15

17 avenues for international expansion other than exporting and importing. This is consistent with the findings of the recent SENSIS Business Index that showed SMEs getting involved internationally through strategic alliances, global supply chains and joint ventures as well as more traditional mechanisms. However, the economic development that was achieved involved a trade-off in terms of developing the capabilities of Australia s SME sector. There are some observed obstacles to Australian SMEs presence in international markets leading to its low participation rate as indicated in Figure 1.1 above. First, the interventionist and inward-looking approach that the Australian government took caused a great deal of confusion among SMEs due to the lack of coordination and consistency in the policy framework (Mortimer, 1997). Secondly, the dominance of foreign MNEs in leading industrial sectors forced Australian entrepreneurial capacity into niche segments of the economy or areas protected from foreign competition by government regulation (Maitland and Nicholas 2002). Consequently, this myopia and inadequate guidance at strengthening SME capabilities has led to fundamental weaknesses of the Australian small business sector. Hence, the limited representation of this sector in overseas markets. The Australian business terrain can be characterized as insular. This implies that Australian entrepreneurial ventures operate in conditions that are dissimilar to those which are typical in other industrialised economies. In brief, the following factors contribute to this insularity of Australian business: 1. Unlike many European, Asian and North American economies where large export markets are virtually on their doorsteps, Australia has to contend with its geographical isolation. The volume of trade tends to be directly proportional to a country s size and inversely proportional to its distance from trading partners. This geographic distance is oftentimes further complicated by psychic distance from foreign markets. 2. Australia s export revenue is traditionally generated by a small number of larger companies. It logically follows that there will be a smaller proportion of exporting 16

18 companies as part of the whole business sector. This has implications for where governmental support and incentives will be channelled. 3. Australia has traditionally had a strong comparative advantage in agriculture and mining. This means large export volumes dominated by relatively few players in these industry sectors. In contrast, other industrial economies have large manufacturing and services sectors with many players. 4. There is also Australia s internal geography. With the vast geographical expanse of Australia, it is interesting that its population is heavily urbanized with companies drawn towards the coastal urban areas. Exporters are no different, as they tend to congregate in cities near ports and infrastructure. 5. The export culture of Australia has been severely constrained by the government s inward- looking policies in the past. Unfortunately, this government stance has been to the detriment of the country s export sector, particularly among SMEs. The combined impact of these geographic, cultural, economic and political factors will take time to overcome, and substantiates this contention of Australia s insularity. Having recognized these obstacles facing Australian SMEs, the question now is what can be done about it? This research aims to contribute to addressing these issues by providing useful information on what works in international business. The extant literature suggests that there are SMEs who are able to overcome their resource constraints and other perceived limitations through innovative combinations of accessible resources, incorporating entrepreneurial qualities into their internationalization process and leveraging participation in appropriate networks to mitigate the impact of psychic and geographic distance. To understand this process better, it was necessary to conduct an exploratory, in-depth investigation of the SME internationalization process. 1.2 Focus of the Research The aim of this research is to examine the interplay between entrepreneurship and internationalization processes as it is reflected in Australian small businesses. 17

19 Entrepreneurial behaviour appears to have the following elements: (1) initiative taking; (2) revisiting the social and economic aspects of a firm s environment in order to find alternative approaches to resources and situations that will enable greater utility and practicality; and (3) acceptance of risk and possible failure (Hisrich & Peters, 2002:10). The study seeks to identify the manifestations of entrepreneurial qualities in selected cases within their unique internationalization experience. Following Zahra and George s (2002) definition of international entrepreneurship cited above, and considering the identified gaps in the investigation of this phenomenon, there is potential for making a theoretical contribution by examining international entrepreneurship in the context of constructs such as: Entrepreneurial motivations and behavior Opportunity Recognition Resource-Based perspective Networks; and Psychic proximity The aim of this study is to examine the interplay among the above cited constructs. It is important to investigate this interplay from a holistic perspective as individual entrepreneurs and subsequently, firms do not make isolated decisions in the process of internationalization. Ultimately, it is hoped that the study will provide a deeper and richer understanding of the process through which domestically operating SMEs expand their activities to international markets. While investigating the SME internationalization process, it is hoped that the influence of individual entrepreneurial qualities can be identified and its significance clarified. This is congruent with the perceived need by international entrepreneurship researchers to incorporate more entrepreneurial issues into this emergent field of enquiry (Jones & Coviello, 2005; McDougall & Oviatt, 2000; Covin & Slevin, 1989) Research Questions Entrepreneurial firms that reach the global market quickly after their birth are affected by a unique set of internal and external drivers that are influenced by the individual 18

20 entrepreneur. For the purpose of this study, what matters is how these firms manage to succeed in a global market (Zahra & George, 2002). In a Special Issue of the International Business Review (2005) focusing on international entrepreneurship research, several worthwhile research directions like including the expansion of the IE domain beyond the early stage of internationalization. An emergent line of enquiry which was identified is the intention, search and discovery of international opportunities. Still others like Zahra (2005) and Autio (2005) have identified potent areas such as the Process Theory of Internationalization (PTI) and its relevance to small firms and how new ventures create and protect their competitive advantage. Bell, et al (2003: 358) have also proposed that the existence of multiple internationalization pathways can facilitate research into how internationalizing SMEs can leverage additional external financing, acquire and exploit knowledge, improve their stock of human capital and enhance their networking capabilities. For purposes of this study, it is important not to lose sight of the identified barriers to Australian small firm internationalization, i.e. Psychic distance Transport costs Labor costs Limited Australian market Inward FDI that has not encouraged entrepreneurship and innovation History of government s inward looking policies The diverse nature of these barriers further justifies the focus of the study on the holistic and interrelated process. Given this background, the study attempts to address the main research question: How do Australian SMEs in the high technology sector overcome barriers to internationalization? RQ1 Does the prior industry and international experience of the entrepreneur, including psychic proximity with identified foreign markets, serve as a strategic resource for small business internationalization? RQ2 Is entry into foreign markets by the SMEs significantly influenced by the owner/managers entrepreneurial and innovation capabilities? 19

21 RQ3 Do domestic market limitations significantly influence the entrepreneur to seek international markets? RQ4 Are government support and incentives a significant factor that facilitates SME internationalization? RQ5 How can Australian SMEs utilise networking as an effective strategy for internationalization? Addressing these related questions above will help to focus the overall research effort Brief Overview of Research Approach and Methodology The methodology adopted for this investigation was influenced to a great extent by the research question. As the research aims to investigate the SME internationalization process in a holistic manner and hence understand the complex web of interrelated decisions leading to the internationalization of an SME, it was important to conduct a thorough and in-depth examination involving a small number of Australian SMEs. Thus the researcher does not attempt to establish causal relationships or generate hypotheses and generalisations, which is typical with larger sample sizes. This trade-off, focusing on more in-depth, richer data on fewer respondents as opposed to a broader insights resulting from a larger respondent numbers, was necessary in order to achieve a fuller understanding of how selected Australian SMEs have overcome the identified barriers to internationalization. A qualitative case study approach was utilised focusing on selected Australian SMEs in the technology and technology application sector. An important dimension of case study research is the amount of detailed information that the researcher collects about each case studied. Other things being held constant, the fewer cases investigated, the more information can be collected about each individual case. Case study research normally implies the collection of unstructured data and its subsequent analysis. It is often argued that the aim of case study research should be to capture cases in their uniqueness, rather than to use them as a basis for wider generalisation or test existing theory. Consequently, 20

22 the findings of case study research, as done in this study, are presented in a narrative approach, rather than framing them in terms of variable dependence and/or relationships (Gomm, et al, 2000). Case study research is not sampling research. Case studies are chosen in order to understand the complexity of a single case - to clarify its particularity (Stake, 1995). Case studies are not investigated to understand other cases. When doing research on a group of case studies, often it is the diversity between cases that enhances knowledge development (Stake, 1995). One particular issue in case study research is that of objectivity. How can objectivity be maintained? How can the previously cited narrative approach to presenting the findings dissociate itself from the own views of the researcher? This issue is a primary concern particularly if the research focuses on individual respondents/case studies (Gomm, et al, 2000). This study, however, deals with organisations, i.e. SMEs. To address this particular issue, the in-depth examination will involve open-ended questions for an identified respondent within each case study firm. In addition, reviews of available historical/archival data and cross-checking/validation with other interviewees within each case organisation will be conducted. This iterative process that draws from several sources of information will be done in order to corroborate initial data collected or identify any disconfirming evidence. Thus, the concern regarding objectivity will be addressed through this multifaceted approach to data collection. Other issues on promoting research quality will be covered in the Chapter on methodology. It is these characteristics of case study research that are seen as appropriate for this particular investigation. As explained earlier, this research is about understanding the phenomenon of international entrepreneurship what the process is all about, what drives the internationalization process, particularly for Australian SMEs, and how the internationalization process reflects entrepreneurial qualities. The propositions developed in Chapter 3 of this thesis are tested with the selected case studies. To ensure that the methodology conforms with previous research done on 21

23 international entrepreneurship, the interview protocol was developed based on measures identified in the extant literature that focussed on the relevant theoretical constructs What this investigation is, and is not, designed to achieve This study involves an in-depth investigation of selected Australian SMEs. It aims to generate new insights into the qualitative issues related to SME internationalization. This will be achieved through an empirically grounded, context specific, multi-faceted investigation, and therefore does not aim for generalisability. Instead, it is hoped that it will contribute a meaningful starting point for further qualitative and quantitative investigations. It is important to articulate at this early stage what this investigation is designed to achieve, and equally important, its limitations and what does not fall within the scope of the research. Table 1.1 below presents this information: Table 1.1: Scope of the Research This investigation will: focus on SME internationalization enhance the understanding of the internationalization process of SMEs by presenting findings in the context of selected Australian SME case studies focus on the process and what facilitates internationalization, particularly factors that relate to the individual entrepreneur provide insights that can be tested or probed in additional studies be a relevant and meaningful starting point for the continuation of qualitative and quantitative investigations into entrepreneurs efforts at internationalizing their firms operations. This investigation will not: focus on corporate or large firm entrepreneurship or internationalization attempt to validate or qualify the relevance of current international entrepreneurship theory focus on the factors or attributes that lead to successful internationalization use Australian SME case studies as a basis for generalizations that will 22

24 apply to other firms be another review or ramification of the staged and contingency patterns of internationalization provide all the answers to the prevailing gaps in knowledge relative to small firm internationalization Key Deliverables The author believes that the conduct of this investigation, as demonstrated in this thesis, represents an important step towards achieving a re-conceptualisation of the internationalization process of small and medium sized firms which incorporates the significant influence of the individual entrepreneur a gap which has been identified by several authors who have published in the international entrepreneurship area (Jones & Coviello, 2005; McDougall & Oviatt, 2000; Covin & Slevin, 1989). As emphasised in previous sections, the study and the related findings are not meant to be a basis for generalizations regarding the process that other firms, both in Australia and overseas, undergo as they pursue opportunities across geographic boundaries. However, this research undertaking will have significant implications on the subject of small firm internationalization in terms of the following deliverables: A holistic conceptual model that reflects the possible interplay/interrelationships among several theoretical constructs drawn from internationalization, entrepreneurship and strategy research. An enhanced understanding of the process that an Australian SME undergoes as part of the effort to overcome the barriers to penetrating international markets. The identification and description of factors that can facilitate the internationalization of the Australian SMEs selected as case studies. A framework for further investigations of the internationalization process of other Australian small businesses or even those in other countries. 23

25 1.7. Thesis Structure Table 1.2 below provides an overview of how this thesis is organised to achieve its objectives. : Introduction To provide an overview of the study and an understanding of the thesis structure. : Literature Review To ascertain the specific issues that the extant literature has addressed and identify where further investigation is required. : Development of the Conceptual Model To gain an understanding of the possible relationships between the theoretical constructs identified in Chapter 2 and represent these in a proposed conceptual model. Provided the motivation behind the research, the background of the investigation, the research focus, research question and related issues and an overview of the methodological approach used. Extensive review of relevant literature. Identified gaps in the knowledge. Identified the theoretical constructs that are expected to have an impact on this particular study. Selected from the literature pertinent measures to investigate the relevant theoretical constructs. Selected the theoretical constructs that will be the focus of this study. Ascertained the possible interplay/interrelationships between theoretical constructs. Developed propositions on the relationships between theoretical constructs. Rationale for conducting the study Research Question and Issues. Thesis Structure Gaps in knowledge Initial ideas on the interplay and interrelationships among different theoretical constructs. Diagrammatic representation of Conceptual Model for the study. Propositions that address the Research Question and Issues. 24

26 : Research Design and Methodology To consider the range of possible research approaches and design the most appropriate research methodology. : Presentation of Research Results To present the findings from the in-depth investigation of the internationalization processes of selected Australian SMEs. Systematically considered the issues of research design. Developed interview protocol to test the propositions in an academically rigorous manner and conforming to accepted data-collection conventions. Three months of in-depth investigations with selected Australian SMEs, involving: iterative open-ended interviews; reviews of archival/historical data; and validating interviews with other employees. Research Methodology that addresses the stated research question. Interview protocol. University Ethical Clearance. In-depth and detailed case study data on selected Australian SMEs in an identified industry sector. : Discussion and Implications for Future Research To generate new knowledge thru a deeper comprehension of the outcomes of the investigation, discussing these in the context of literature and practise. To ensure the research objectives have been met, summarise the theoretical contribution and recommend future research directions. Triangulation of data from various sources to achieve a deeper understanding of the drivers of the internationalization process for selected Australian SMEs. Reflect upon research activities and outcomes to ensure satisfaction of research objectives. Synthesis of key findings to reflect the complexity and uniqueness of each case study Australian SME. Reflect upon investigation and literature to identify future research directions. Articulated/proven interplay/interrelationships of relevant theoretical constructs in the context selected Australian SMEs. Better understanding of internationalization process of selected Australian SMEs. Recommendations for further research. 25

27 Chapter 2: Literature Review 2.0 Introduction Although there has been considerable work done on defining international entrepreneurship (e.g. McDougall, 1989; Giamartino, McDougall and Bird, 1993; Oviatt and McDougall, 1994; Wright and Ricks, 1994; and McDougall and Oviatt, 2000), there still remains some ambiguity in terms of the domain of this phenomenon (Zahra and George, 2002). McDougall and Oviatt (2000) have qualified international entrepreneurship as an emergent field of study occupying an overlap between the international business and entrepreneurship disciplines. However, there is concern that international entrepreneurship research lacks a clear and unified theoretical direction (McDougall and Oviatt, 2000). Despite the recent advances in internationalization research, studies specific to international entrepreneurship still require a paradigm shift and the use of alternative research lenses to gain a better understanding of how internationalizing firms develop competitive advantage through entrepreneurial behavior (Jones and Coviello, 2005). One of the areas where there has been limited investigation is in the significance of international entrepreneurship theory for SMEs (Rutashobya and Jaensson, 2004). SMEs have considerably increased their international activities. Changes in the competitive environment and the interdependence of the global economy make internationalization an imperative for many entrepreneurial firms (Zahra & George, 2002). OECD data indicate that as of 2000, SMEs contributed between 25% to 35% of world manufactured exports and accounted for a smaller share of Foreign Direct Investment (OECD, 2002). In Australia, there are some parallel changes in the composition of the business sector. In response to the burgeoning global trends, small exporters are growing in terms of company size and regional Australia is showing indications of strong sectoral growth. These developments reflect a slight departure from the insular characteristics of the Australian economy discussed previously in Chapter 1. During the late 1990s, micro and small exporters grew at an average of 11% and 9% annually, compared with 4% for medium players, with a fall of 5% for large exporters. The trends are not spectacular, but are 26

28 probably indicative of subsequent growth. It must be noted, however, that despite the evidence of increased internationalization among Australian firms, international activities are increasing in terms of number of markets rather than more involvement in existing markets. Australian firms have also been observed to pursue traditional markets in USA and Europe which are perceived to have less uncertainty (Alam & Pacher, 2003). The Australian export culture is also undergoing some changes with more entrepreneurial ventures falling into the category of born globals firms that get involved in international operations from the time of their inception rather than focusing on the Australian domestic market initially (McKinsey & Co, 1993; AUSTRADE, 2002). The author supports the thinking that examining the interplay between entrepreneurship and internationalization processes in the context of SMEs is a worthwhile topic of research (Zahra and George, 2002). To examine these processes, it is necessary to look into internal and external factors that have an effect on the internationalization process, particularly as these relate to SMEs. The discussion in following sections will draw from three main bodies of theory (entrepreneurship, strategic management and internationalization) and the rapidly growing hybrid field of international entrepreneurship. Zahra & George (2002) have cited the need to enhance the significance of international entrepreneurship research by reinforcing its theoretical rigour. Three potential areas of research that can place international entrepreneurship as a prominent and productive research stream were identified by Zahra and George, as follows: the international entrepreneurship process, the context of international entrepreneurship, and post-internationalization agenda. The first two areas - the international entrepreneurship process, and to an extent, the context of international entrepreneurship focus on issues that are highly congruent with the main theme of this study, i.e. how SMEs overcome the barriers to internationalization. The pertinent questions are how, why and when do entrepreneurial firms discover and exploit opportunities outside their home country? An equally important issue is the conditions that make internationalization a more promising option than solely domestic operations. The combination of these issues present situations that drive firm internationalization. 27

29 The third issue of post-internationalization agenda is beyond the scope of the current study as it deals with issues relating to firm activities after it has penetrated international markets. The literature on entrepreneurship reveals that there is an evolutionary process that takes place as the individual entrepreneur launches a firm (SME), wherein the nascent entrepreneur becomes a practising entrepreneur (Casson, 1998; Morris, 2005; Jones & Coviello, 2005). There is also evidence from the internationalization literature that there can be a congruent evolutionary process that occurs as a small entrepreneurial firm establishes itself in a domestic market and then pursues growth and expansion in overseas markets (Casson, 1982; Jones & Coviello, 2005). This study aims to trace this evolutionary process from the individual entrepreneur, to the proprietary level, to an internationally operating SME. In addition to this unique perspective, the study will also focus on the Australian context. The review of extant literature along these main bodies of theory will lead to the selection of constructs that will provide the theoretical underpinnings for this study The Interplay between Internationalization and Entrepreneurship Issues The internationalization of firms has been the subject of extensive academic enquiry. However, small-firm internationalization is an area that has not received much attention (Rutashobya & Jaensson, 2004). The emergence of a new stream of the internationalization literature focussing on born global firms in the early 1990s ushered in a new-found interest in smaller entrepreneurial firms which adopt a global focus from inception through the implementation of a rapid and systematic internationalization approach (McKinsey and Co, 1993). The born-global phenomenon was indicative of the inevitable trend towards globalisation mediated by the pervasive impact of enabling new technologies (Knight & Cavusgil, 1996). Born-global firms management are more committed to internationalization, pursue global market niches from inception and generally exhibit more proactiveness (Covin & Slevin, 1989). This proactiveness, encompassing cognition, learning and strategy that set entrepreneurial 28