PREVIEW INTERNATIONAL ENTREPRENEURSHIP ACTIVITIES. AMONG THAI SMEs ARUNEE TANVISUTH. B.B.A., Thammasat University, 1989

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1 INTERNATIONAL ENTREPRENEURSHIP ACTIVITIES AMONG THAI SMEs by ARUNEE TANVISUTH B.B.A., Thammasat University, 1989 M.Sc., University of British Columbia, 1993 A thesis submitted to the Faculty of the Graduate School of the University of Colorado in partial fulfillment of the requirement for the degree of Doctor of Philosophy Leeds School of Business, Management Division 2007

2 UMI Number: Copyright 2007 by Tanvisuth, Arunee All rights reserved. UMI Microform Copyright 2007 by ProQuest Information and Learning Company. All rights reserved. This microform edition is protected against unauthorized copying under Title 17, United States Code. ProQuest Information and Learning Company 300 North Zeeb Road P.O. Box 1346 Ann Arbor, MI

3 This thesis entitled: International Entrepreneurship Activities Among Thai SMEs written by Arunee Tanvisuth has been approved for the Leeds School of Business, Management Division Prof. G. Dale Meyer, Chair Prof. James Nelson Prof. Patricia McDougall (Indiana University) Prof. Elaine Mosakowski Prof. Michael Palmer Date May 31, 2007 The final copy of this thesis has been examined by the signatories, and we find that both the content and the form meet acceptable presentation standards of scholarly work in the above mentioned discipline.

4 Tanvisuth, Arunee (Ph.D., Business Administration) iii INTERNATIONAL ENTREPRENEURSHIP ACTIVITIES AMONG THAI SMEs Thesis directed by Professor G. Dale Meyer This dissertation examines the relationship between international entrepreneurship and firm performance in a context of small and medium-sized enterprises (SMEs) in developing country. The objectives of this dissertation are to: (1) understand international entrepreneurship activities of SMEs in Thailand in terms of their antecedents and consequences; (2) examine the influences of entrepreneurial orientation, global mindset, imitative capability, and strategic flexibility on international entrepreneurship activities and firm performance; (3) suggest productive directions for future research on international entrepreneurship; and (4) provide recommendations for business practitioners and policy makers on how to use international entrepreneurship activities to enhance competitive advantage of Thai SMEs in international markets. The future research recommendations, the practical recommendations for SMEs, and the public policy suggestions are practical and useful for researchers, SME owners, and public officials. The results of this study are strong and consistent with previous work in the field. Using structural equation modeling technique, this study provides quantitative evidence that international entrepreneurship has positive associations with strategic performance (i.e. competitive capability, technological learning, and connections and

5 iv contacts). The analyses show that entrepreneurial orientation (i.e. innovativeness and proactiveness) and global mindset (i.e. polycentric and geocentric orientation) have positive impacts on firm performance. SMEs might find imitation a more favorable strategy than innovation since it has a stronger impact on firm performance. Some surprising findings from this study are a high correlation between innovativeness and proactiveness, and a negative relationship between risk-taking and innovativeness and risk-taking and proactiveness. These unanticipated results raise the question whether these two measures of innovativeness and proactiveness are empirically or theoretically distinct and the concern of applying Western concept in a different setting. By including new constructs (i.e. global mindset, imitative capability, and strategic flexibility) that are unusual and innovative in international entrepreneurship research, this dissertation adds new angles to the study of international entrepreneurship. This study also provides useful recommendations for Thai entrepreneurs and policy makers on how to help Thai SMEs increase their competitiveness in international markets through international entrepreneurship activities. This domain of study will be continued with longitudinal follow-up of the SMEs that participated in the present study.

6 Dedication To my parents, Ping and Janya Tanvisuth, I am so grateful for your love, inspirations, and sacrifices. To my sisters (Eupin, Jutamas, and Alisa), brothers (Wallop and Pongsak), and their families (Sriruthai, Anong, Salin, Koranis, Sila, and Korawat), I cannot thank you enough for your unwavering belief in me and for all your love, support and encouragement without them this achievement would not be possible.

7 Acknowledgements vi I greatly appreciate the mentoring and support of the entire Management Department at the University of Colorado at Boulder throughout my time here. Special thanks are due to the members of my dissertation committee for their guidance on this project: Prof. G. Dale Meyer (Chair), Prof. James Nelson, Prof. Patricia McDougall, Prof. Elaine Mosakowski, and Prof. Michael Palmer. Dale has been an ideal mentor. I couldn t ask for a better adviser and Chair. Your wisdom, dedication, and kindness will be cherished forever you have shown me the meaning of a true teacher and I ve always said to my family and friends that I wanna be a teacher like Dale I hope that one day I can make you proud. You and Carol have taught me that one should only live a caring and compassionate life. I am now a true believer of Daleism and will do my part to make it comes true one day. I am grateful to Ajarn James for his expertise, guidance, and tireless support. You are a perfectionist yet you have a great ability to get things done a quality that is hardly seen in one person. Having a chance to know and work with you is a real serendipity for me. It would be an honor to be able to continue this professional and personal relationship with you in the future. I am also thankful for a friendship with your family, Cody and Ian. I also would like to acknowledge and express my gratitude to the Faculty of Commerce and Accountancy, Thammasat University. Thammasat has been a big supporter, both morally and financially throughout my educational and professional career I love Thammasat because Thammasat teaches me how to love other people (sorry that I didn t do a proper quotation here). Special thanks also go to my colleagues at the Department of International Business, Logistics and Transport for their support and share of extra workload during my educational leave. Nok and Mee+ you are my family here. I have been touched by your true friendship and genuine caring for me. Knowing you two has made me wonder about my karma. I must have done something good (in my past life?) to deserve your love and support. Completing this Ph.D. would have been much harder without the help from you two. The friendship with all my Thai and American friends here in Boulder has made my far away from home life in the U.S. such a wonderful experience and I wouldn t trade it for anything else. My dearest friends, Aor, Ong, Bob, and Gai thanks for always being there for me (while I m here) our gang of five will rule an academic world soon. Lastly, my life here would be much lonely if I didn t have you with me so Silly, wherever you are, you are always here in my heart.

8 CONTENTS vii Chapter I Chapter II Chapter III Chapter IV Introduction Origins of the dissertation Research Objectives Research Questions Expected Research Contributions Dissertation Structure.9 Literature Review Introduction International Entrepreneurship Measurement and Dimensionality of International Entrepreneurship Activities International Entrepreneurship Activities and Firm Performance Entrepreneurial Orientation Three Main Dimensions of Entrepreneurial Orientation Entrepreneurial Orientation and Firm Performance Global Mindset Imitative Capability Strategic Flexibility Firm Performance Chapter Summary Research Models, Propositions, and Hypotheses Introduction Conceptual Research Model Comprehensive Research Model Research Propositions and Hypotheses Chapter Summary Research Design and Methodology Introduction Research Design Overview Sampling Plan Population of Interest Sampling Frame Survey Questionnaire Questionnaire Development Forward and Back Translation Pretest Final Questionnaire Independent, Mediator, and Control Variables Dependent Variables Data Collection.68

9 viii 4.6 Data Analysis Approach Chapter Summary Chapter V Chapter VI References Appendix A Appendix B Appendix C Data Analysis and Results Introduction Data Assessment Confirmatory Factor Analyses Measurement Model for Entrepreneurial Orientation Measurement Model for Global Mindset Measurement for Imitative Capability and Strategic Flexibility Measurement Model for Strategic Performance Measurement Model Summary Research Question Research Question Research Question Research Question Research Question Chapter Summary Discussion of Results, Limitations, and Implications Introduction Discussion of Results International Entrepreneurship Activities and Strategic Performance International Entrepreneurship Activities as a Predictor of Firm Performance Entrepreneurial Orientation and Strategic Performance Global Mindset and Strategic Performance Innovativeness and Imitative Capability Characteristics of Successful SMEs Some Surprising Findings Financial Performance. is it a good performance measure? Limitations Theoretical Contributions Managerial Implications Recommendations for Policy Makers Future Research Conclusion Questionnaires and Cover Letters Normality Assessment Results Summary of Measures for IE-Activities

10 TABLES ix Table 3.1 Table 4.1 Table 5.1 Table 5.2 Table 5.3 Table 5.4 Table 5.5 Table 5.6 Table 5.7 Table 5.8 Table 5.9 Table 5.10 Table 5.11 Table 5.12 Table 5.13 Table 5.14 Table 5.15 Table 5.16 Conceptual Definitions of Main Constructs of Interest.. 48 Summary of Measures for the Study s Main Constructs...62 Firm Characteristics by Respondent Groups (n = 177).. 74 Analysis of Non-Response Data by Selected Measurement Items and Constructs Indices Used and Recommended Fit Standards Innovativeness Model Fit Statistics (n = 177) Full Measurement Model and Penultimate Measurement Model Fit Statistics by Construct (n = 177) Summary of Final Measurement Properties (n = 177)...88 Summated Scale Means, Standard Deviations, and Observed Correlations (n = 177) Model Fit Statistics: IE-Activities and Strategic Performance Structural Model (n = 177) Summary of Standardized Paths for Step 1* (n = 177).. 98 Summary of Model Fit Statistics for Step 1* (n = 177) Summary of Standardized Paths for Step 2* (n = 177) Summary of Model Fit Statistics for Step 2* (n = 177) Summary of Model Fit Statistics for Step 3* (n = 177) Summary of Standardized Paths for Step 4 (n = 177) Summary of Model Fit Statistics for Step 4* (n = 177) Summary of Standardized Paths, SMCs, and t Values for Entrepreneurial Orientation and Global Mindset with Strategic Performance (n = 177)

11 Table 5.17 Table 5.18 Table 5.19 Table 5.20 Table 5.21 Table 5.22 Table 5.23 Table 6.1 Table 6.2 Table 6.3 Table 6.4 Table 6.5 Model Fit Statistics: Entrepreneurial Orientation and Global Mindset with Strategic Performance (n = 177) Summary of Standardized Paths, SMCs, and t Values for Innovativeness and Imitative Capability with Strategic Performance (n = 177) Summary of Model Fit Statistics for Innovativeness and Imitative Capability with Strategic Performance (n = 177) Frequency Distribution for Strategic Performance (n = 177)..119 Frequency Distribution for Financial Performance (n = 160)..119 Mean Values of Different Characteristics between High Performers (H) and Low Performers (L) t- values for Equality of Means between High and Low Performers Summary of Propositions and Hypotheses Testing Summary of International Entrepreneurship Activities and Strategic Performance Relationships Effects of Entrepreneurial Orientation (EO) and Global Mindset (GM) on the Four Subsets of Strategic Performance 135 Effects of Innovativeness (Inno) and Imitative Capability (IC) on the Four Subsets of Strategic Performance Entrepreneurial Orientation (EO) Dimensions for High and Low Performing International Entrepreneurs in Thailand.137 x

12 FIGURES xi Figure 2.1 Figure 3.1 Figure 3.2 Figure 5.1 Figure 5.2 Figure 5.3 Figure 5.4 Figure 5.5 Figure 5.6 Figure 5.7 Figure 5.8 Figure 5.9 Figure 5.10 Figure 5.11 Figure 5.12 Figure 6.1 Integrated Model of International Entrepreneurship (Zahra & George, 2002) Conceptual Research Model Comprehensive Research Model Innovativeness Measurement Model, Standardized Estimates (n = 177) IE-Activities and Competitive Capability Structural Model, Standardized Estimates (n = 177) The Unmediated Model The Mediated Model Innovativeness and Competitive Capability Structural Model, Standardized Estimates (n = 177) Innovativeness and IE-Activities Structural Model, Standardized Estimates (n = 177) IE-Activities and Competitive Capability Structural Model, Standardized Estimates (n = 177) Innovativeness, IE-Activities, and Competitive Capability Structural Model, Standardized Estimates (n = 177).104 Entrepreneurial Orientation and Competitive Capability Structural Model, Standardized Estimates (n = 175) Global Mindset and Competitive Capability Structural Model, Standardized Estimates (n = 177) Innovativeness and Competitive Capability Structural Model, Standardized Estimates (n = 177) Imitative Capability and Competitive Capability Structural Model, Standardized Estimates (n = 177) Relationships between Firm s Characteristics, International Entrepreneurship Activities, and Strategic Performance...130

13 CHAPTER I 1 INTRODUCTION 1.1 Origins of the Dissertation This dissertation provides insight into the nature of international entrepreneurship activities of small and medium enterprises (SMEs) in Thailand and how these activities affect their performance. It originates from my desire to contribute to what is known about international entrepreneurship and my desire to improve performance of Thai SMEs in international markets. Since the early 1990s, scholars, business people, and governments have come to view international entrepreneurship as an important means to enhance performance of companies and economies. This view is based on results of many international entrepreneurship studies. Most of these studies utilize organizational characteristics, environmental factors, and firm strategies as independent variables to explain international entrepreneurship performance (see selected References, pp ). While much has been learned from this effort, important issues remain unresolved because of research limitations or shortcomings (Zahra & George, 2002). For example, most studies of international entrepreneurship have focused on relatively young high-technology industries located in developed countries (e.g., Bloodgood, Sapienza, & Almeida, 1996; Autio, Sapienza, & Almeida, 2000; Zahra, Ireland, & Hitt, 2000; Busenitz, Gomez, & Spencer, 2000). Most studies have

14 2 presumed that international entrepreneurship is indicated by simple measures of a firm s international sales revenues (McDougall, 1989; McDougall & Oviatt, 1996; Bloodgood et al., 1996; Reuber & Fischer, 1997; Roberts & Senturia, 1996). This present study expands international entrepreneurship research to examine a crosssection of industries located in a developing country using a conceptually sound measure of entrepreneurial orientation, global mindset, imitative capability, and strategic flexibility. It uses more detailed measures besides international sales to describe international entrepreneurship activities. These and other contributions expected from this dissertation are discussed in the following sections. SMEs are a significant mechanism for economic development in Thailand. The Thai government has recognized the importance of small and medium-sized firms to their economy since 1992 when an SME agenda was put into the National Economic and Social Plan for the first time. However, only after an economic crisis in 1997 when SMEs proved to be more resilient than larger enterprises did the Thai government embark upon and seriously review and formulate a policy for SME development. In 1999, the Institute for Small and Medium Enterprises Development (ISMED) was established to promote the development of SMEs in Thailand. Presently, about 99 percent of the 850,000 enterprises in Thailand are classified as SMEs (data from Department of Industrial Promotion, SMEs provide about 80 percent of total employment, with an annual growth rate of 5.2 percent during (research conducted by Thailand Development

15 3 Research Institute in 2002). SMEs contributed about 42 percent of Thailand s total GDP in During , the contribution of SMEs to Thailand s GDP grew at the rate of 20 percent per year (research conducted by Thailand Development Research Institute in 2002). SMEs scatter all over the country and they act as both buyers and producers of products and services needed in remote regions; therefore, SMEs are a significant engine for income distribution and prosperity of Thailand. However, a study reported by ISMED (2001) has shown that Thai SMEs in the new competitive environment struggle with problems that decrease their ability to compete in international markets. Examples of problems facing Thai SMEs (data from ISMED, are as follows: 1. limited access to financial resources; 2. lack of qualified human resources; 3. insufficient production or manufacturing technology; 4. insufficient marketing skills; 5. family-style management; 6. limited use of government support; and 7. limited access to information These problems highlight the need to support Thai SMEs to become more competitive as markets in Thailand and surrounding countries have become increasingly globalized. At present, about 30 percent of Thai enterprises rely on export markets (data from Department of Industrial Promotion). Focused research has

16 4 the potential to help guide both business and government policy in this quest for a greater and effective presence through international entrepreneurship activities. 1.2 Research Objectives The general purpose of this dissertation research is to learn more about the effect of international entrepreneurship activities on SME performance in Thailand. Specific objectives are to: 1. understand international entrepreneurship activities of SMEs in Thailand in terms of their antecedents and consequences; 2. examine the influences of entrepreneurial orientation, global mindset, imitative capability, and strategic flexibility on international entrepreneurship activities and firm performance; 3. suggest productive directions for future research on international entrepreneurship; and 4. provide recommendations for business practitioners and policy makers on how to use international entrepreneurship to enhance competitive advantages of Thai SMEs in international markets. This study examines the effects of a number of different international entrepreneurship activities (e.g., exports, imports, foreign direct investments, strategic alliances, outsourcing, and licensing) on firm performance. It investigates entrepreneurial orientation, global mindset, imitative capability, and strategic flexibility as common antecedents of international entrepreneurship activities and

17 5 firm performance. Firm performance is considered both from a quantitative financial point of view as well as from a broader strategic point of view. 1.3 Research Questions Since this research is designed to better understand the nature of international entrepreneurship activities among Thai SMEs, the general research question of this dissertation is To what degree are different international entrepreneurship activities related to performance of SMEs in Thailand? Five specific research questions then follow: 1. Which international entrepreneurship activities have the strongest impact on firm performance? 2. Do international entrepreneurship activities mediate causal relationships between entrepreneurial orientation, global mindset, imitative capability, strategic flexibility, and firm performance? 3. Comparing entrepreneurial orientation and global mindset, which construct shows the strongest relationship with firm performance? 4. Comparing innovativeness and imitative capability, which construct shows the strongest relationship with firm performance? 5. What are specific characteristics of SMEs that perform well in international markets? Can these characteristics be used as best practices or as training objectives to improve performance of Thai SMEs in international markets?

18 6 From these specific research questions, propositions and hypotheses are developed and discussed in more detail in Chapter III. 1.4 Expected Research Contributions This study adds to the conceptual understanding of international entrepreneurship by its inclusion of three exogenous concepts not yet examined in international entrepreneurship research: global mindset; imitative capability; and strategic flexibility. These three constructs plus entrepreneurial orientation (a construct that is commonly studied in international entrepreneurship research) provide theoretical perspectives when examining relationships between international entrepreneurship activities and firm performance. The research design (see Chapter IV) offers potential to provide strategic and operational recommendations to SMEs and policy guidance to the Thai government. This study addresses four gaps in past research in international entrepreneurship as identified by the Zahra and George (2002) meta-analysis. First, past research in international entrepreneurship has measured international entrepreneurship activities utilizing international sales volume (degree of internationalization), the time lapse between a firm s creation and its first foreign sales (speed of internationalization), and the number of foreign markets where a firm s sales have occurred (scope of internationalization). Past research has not included measures of innovation, proactiveness, and risk-taking that are the very foundation or definition of entrepreneurship (Zahra & George, 2002; McDougall &

19 7 Oviatt, 2000; Wright & Ricks, 1994). The present study focuses on these entrepreneurial orientation dimensions to more directly measure the entrepreneurship variable in the definition of international entrepreneurship. Second, past research in international entrepreneurship has examined only the degree, speed, and scope of a firm s international sales, ignoring the internationalization of a firm s value chain or inputs into the production process (Zahra & George, 2002: 265). Thus, this dissertation research examines international entrepreneurship activities based not only on a firm s international sales (exports) but also on other outbound international activities (such as foreign direct investments, strategic alliances, outsourcing, and licensing) and on its inbound international operations (imports) to capture a more complete picture of a firm s international entrepreneurship activities. These activities are categorized into IE-finance, IEstrategy, and IE-operations to provide new perspective on international entrepreneurship activities. Third, past research in international entrepreneurship has focused on financial outcomes of international entrepreneurship activities such as net income or return on assets, largely ignoring non-financial outcomes of international entrepreneurship (Zahra & George, 2002: 278). Relationships between financial performance and international entrepreneurship activities often are small and not significant (Bloodgood et al., 1996; McDougall & Oviatt, 1996). However, these relationships suffer from accounting issues (e.g., fixed cost allocations, asset amortizations vs.

20 8 expensing decisions, recognitions of sales revenues, profits and income taxation concerns) as well as from time lags between recognition of expenses and sales revenues. Further, financial outcomes of international entrepreneurship activities overlook important strategic benefits resulting from these activities such as gains in managerial insight, technological learning, networking, and overall improvement of the firm s ability to compete. Thus, this study uses both financial and strategic measures to link international entrepreneurship activities to firm performance. Fourth, past research in international entrepreneurship has focused mainly on high-technology industries with samples mostly from the U.S. and other developed countries. This study investigates a sample of Thai SMEs across different industries to see whether the results will be the same as the ones from developed countries or not. Finally, (in addition to the Zahra and George (2002) research guidepost), this study provides business implications in the form of best practices for Thai SMEs to improve their performance in international markets. Given that SMEs are important parts of the economies of all developing countries, governments of other developing countries might use findings from this study to create or modify policies and regulations that should enhance international competitiveness of SMEs in their home countries.

21 1.5 Dissertation Structure 9 Chapter I introduces the dissertation in terms of its origins and objectives. Chapter I also describes research scope, research questions, and expected research contributions. Chapter II reviews literature that links organizational characteristics to international entrepreneurship activities and to firm performance. Chapter II focuses on six main constructs: international entrepreneurship activities; entrepreneurial orientation; global mindset; imitative capability; strategic flexibility; and firm performance. Given the interdisciplinary nature of the dissertation s international entrepreneurship topic, Chapter II reviews conceptual and empirical work found in the entrepreneurship, international business, and strategic management literatures. Chapter III builds on the literature review from Chapter II to develop conceptual and comprehensive research models that provide the foundation for the study s research propositions and hypotheses. Chapter III also discusses the dissertation s theoretical framework and presents formal definitions of research constructs. Chapter IV describes research design and methodology used to investigate the research propositions and hypotheses. Chapter IV outlines the study s field survey design, sampling plan, survey questionnaire, data collection procedures, and data

22 10 analysis approach. It develops research operationalizations for all independent, dependent, and mediating variables used to test research propositions and hypotheses. Chapter V discusses data inspection process such as data coding audit, normality assessment, and non-response bias testing. It also describes procedures and results of data analysis. Data analysis begins with confirmatory factor analyses to estimate measurement models for the study s six main constructs and continues with structural equation modeling to test propositions and hypotheses of this study. Chapter VI concludes the dissertation by discussing research results, describing theoretical contributions to the international entrepreneurship literature, providing relevant implications for SME entrepreneurs, and offering policy recommendations for governments of Thailand and other Southeast Asian countries. Chapter VI also identifies key limitations of the research design and offers suggestions for future research on international entrepreneurship.

23 CHAPTER II 11 LITERATURE REVIEW 2.1 Introduction Chapter II reviews literature on six main constructs studied in this dissertation: (1) international entrepreneurship; (2) entrepreneurial orientation; (3) global mindset; (4) imitative capability; (5) strategic flexibility; and (6) firm performance. International entrepreneurship, which is the key construct of this dissertation, is studied utilizing three subsets of international entrepreneurship activities that are labeled (a) finance, (b) strategy, and (c) operations. Entrepreneurial orientation, global mindset, imitative capability, and strategic flexibility are firm characteristics and antecedents of international entrepreneurship activities. Finally, international entrepreneurship activity is the primary independent variable utilized to explain the dependent variable of firm performance. 2.2 International Entrepreneurship Before the 1990s international business and entrepreneurship were two different areas of study that seldom intersected (McDougall & Oviatt, 2000). While international business researchers focus their studies on international activities of large multinational corporations, academics in entrepreneurship concentrate their works on creation and management of small and medium-sized enterprises. The globalization of the world economy has changed all that and the emergence of the born global phenomenon has made international entrepreneurship, an intersection

24 12 of international business and entrepreneurship, a new interesting and significant research topic (McDougall & Oviatt, 2000). International entrepreneurship was first introduced in 1988 by Morrow as a new growth opportunity for both new ventures and established firms (Zahra & George, 2002). McDougall s study of the born global firms was the first empirical work to support the term international entrepreneurship as it showed significant differences between international new ventures and domestic new ventures in terms of their strategy and industry structure (McDougall, 1989). McDougall, who is a true pioneer in this field, focused on the development of international new ventures or start-ups that, from inception, engage in international business, thus viewing their operating domain as international from the initial stages of firm s operation (McDougall, 1989: 388). The definition of international entrepreneurship has evolved over the past decade and academics have tried to incorporate international business, entrepreneurship, and even strategic management perspectives into their definitions of international entrepreneurship. Wright and Ricks view international entrepreneurship as a firm-level activity that crosses national borders and focuses on the relation between business and the international environments in which they operate (Wright & Ricks, 1994). Zahra and George offer the process of creatively discovering and exploiting opportunities that lie outside the firm s domestic markets in the pursuit of competitive advantage as their definition (Zahra & George, 2002: 261). And Oviatt