The Internationalization of New and Small Firms: A Resource-Based View

Abstract

This paper seeks to enhance understanding of the internationalization of small- and medium-sized enterprises (SMEs). The study focuses upon the following issues: Can the characteristics of principal founders, businesses, and the external environment at one point in time be used to ‘explain' at a later date whether a firm is still an exporter or a nonexporter, whether exporting firms are larger in size than nonexporting firms, whether exporting firms report superior performance than nonexporting firms, and whether exporting firms are more likely to survive than nonexporting firms? To address these questions, this study draws upon a sample of 621 manufacturing, construction, and services businesses located in twelve contrasting environments in Great Britain surveyed first in 1990/91 and then re-interviewed in 1997. A resource-based view is reviewed to identify the range of factors encouraging some owner-managed SMEs to enter export markets. Four categories of human and financial capital are examined: general human capital resources, the principal founder's management know-how, the principal founder's specific industry know-how, and a principal founder's ability to obtain financial resources that can act as a buffer against random shocks. Variables relating to resource availability in the external environment were also collected and considered control variables. Previous studies have highlighted substantial industry differences in the propensity for businesses to enter export markets as well as to survive. The principal industrial activity of each business in 1990/91 was, therefore, considered a control variable. Variables collected during the 1990/91 survey were selected to explain variations in the propensity to export reported by surviving independent firms in 1997. After elimination of missing values, the working sample was reduced to 116 independent firms for this study (86 nonexporters and 30 exporters in 1997). In addition, the 21 variables were selected to explain variations in business size in 1997, profit performance relative to competitors reported in 1997, changes in employment over the 1990/91 to 1997 period, and business survival over the 1990/91 to 1997 period (213 survivors and 395 nonsurvivors). Multivariate statistical analysis confirmed that previous experience of selling goods or services abroad is a key influence encouraging firms to export. Businesses with older principal founders, with more resources, denser information and contact networks, and considerable management know-how are significantly more likely to be exporters. Further, businesses with principal founders that had considerable industry-specific knowledge are markedly more likely to be exporters. Businesses principally engaged in the service sectors and those located in urban areas are significantly less likely to be exporters. A key finding of this study is that the explanatory variables significantly associated with the propensity to export sales abroad are not the same as those significantly associated with selected size and performance measures. The resource-based explanatory variables selected fail to significantly detect employment-growing firms over the 1990/91 to 1997 period. They also fail to significantly distinguish surviving independent firms from nonsurviving firms. Results from this study will provide policy-makers and practitioners with additional insights into the key resource-based factors associated with the decision by new and small independent firms to export sales abroad. Practitioners and policy-makers can focus upon the characteristics of principal founders, businesses, and the external environment to predict the subsequent propensity of an independent firm to be an exporter. Policy-makers and practitioners who want more new and small firms to export outside their local areas may prefer to target their resources and assistance to the relatively smaller proportion of firms that have the business and principal founder profiles that are significantly associated with a firm being an exporter.