The development of Small and Medium Sized Enterprises
It is known that the globalization is a trend that has important impact on every perspective of the society. The development of Small and Medium Sized Enterprises (SMEs) is also becoming more and more international. Although in this process they must confront risk and costs challenge. It seems like a contradiction. But at present it is known as a common phenomenon. The SMEs are seeking for new opportunities overseas such as extended market, cheaper labors and so on. It is necessary to develop the overseas market because the domestic market is not limitless(Patricia Phillips McDougall & Benjamin M. Oviatt, 2000).
The SMEs must handle the internationalization appropriately in order to survive in the globalize economy. The only final goal is making more profits. This essay will search the inner logic of the SMEs' internationalization. First, the essay will present the definition and the motivation of the internationalization of the SMEs, and also introduce the existing theory called life cycle models and a newer theory called Uppsala School of internationalization. The newer theory challenged the previous one, the essay will present in what way the challenge occurred. Then, the essay will explain the advantages and disadvantages of two theories concerning consideration of the SMEs' internationalization. Last but not the least, the essay will explain the why the SMEs can survive overseas and support the trend of the SMEs' internationalization.
Definition and characteristics of the internationalization of the SMEs: Exporting has been regarded the most important way of internationalization for enterprises. During this process, the domestic enterprises are connected with the foreign enterprises, and the main focus of the exporting is making profits. But in the past several years, internationalization consists of more activities which have decisive significance, for example, the outward as well as inward activities. Exporting still is an important way to internationalize(Obviate B.M., McDougall P. P. 1999), the inward activities as import or permission to knowledge are also considered as the components of the SMEs' internationalization. The main focus of the present internationalization is to improve the competitiveness of the enterprises as well as making profits.It is a way to make the enterprises have a long term development and gain more profits. Generally speaking, the internationalization of the SMEs can be defined as a process which consists of various factors and management strategies, either the inward factors or the outward factors, to enhance the competitiveness, extend the market and gain long term development. The SMEs are a special business type. They have some special characteristics(Alanhuhta, and Jeannet, 1992). For examples, most of them are small in size and capacity, they are easily influenced by the owner-manager, most of the entrepreneurs do not have long-term horizons as well as sufficient cash, and most of the SMEs have financial problems. What is more, most of them are local-demand orientated and have a weak influence on the market. The customers are limited in a small range and the SMEs depend too much on the customers. According to the description above, the SMEs are not strong enough, so the SMEs need internationalization to make themselves stronger and more competitive, although a lot of problems and barriers are on the way.
Motivation of the internationalization of the SMEs
Why do the SMEs want to internationalize? They develop at home well, for example, they are familiar with the customers, the circumstances around them. Once they went abroad, they will confront the risk and costs problems. But the internationalization is an unavoidable trend. What are the motivations? Generally speaking, the larger market should be the most fundamental and attractive for the SMEs. Through exporting the enterprises have established some market occupation overseas. But it is necessary to expand the market besides the domestic market. Other ways like subsidiaries or joint ventures overseas are also important internationalization process. As for this motivation, there are several branches to describe.
Push or pull driver: The push driver means the domestic market is not large enough for the products. Especially the specialized products or fierce competition in the domestic market need more space. The other is pull driver, the foreign markets require the products. Most frequently, it is the main consumers who require the enterprises go with them onto the overseas markets.
Knowledge or technology: It is the most attractive to the importers as well as the second significant motivation for the internationalization of the enterprises which with more complicated forms. This way means the internationalization is not only a mean to improve the sales and gain more profits but also a way to learn new knowledge and technology about enterprises management. The final aim is to enhance the competitiveness of the enterprises and gain long term development with more profits.
Additional production capacity: It also can be described as the cheaper sub-suppliers which mean the manufacturers outsource the enterprises abroad in order to cut down the costs. The other situation is the core technology or root is still kept in the native place. However, the other skills are outsourced to the foreign countries.
Way to capital: some enterprises are going abroad in order to gain financial support from the foreign capital. It is also a trend that the SMEs cooperate with the big company in long-term sight.
The description of the two theories:
Life cycle models: This theory is widely used in a lot of fields like political, economical and other areas. The fundamental core concept can be described as cradle-to-grave. It is a natural development process for all products. For example, the life cycle of a product should include the collection of the raw materials, the manufacturing process, the storing, the transportation as well as the usage of the products. The cycle does not stop here, when the products can not be used any more, the products should be discarded and returned to the nature. This is a holistic process of a life cycle. It is a way of description, presentation and operation. It emphasizes on the general and practical production process. In recent years, the key concept of life cycle model, which is called life cycle evaluation, is used a lot. This concept is a evaluation system, usually used to compare and evaluate two or more solutions, then the most economical and reasonable solution will be picked up as the final handling way. The limitation of this theory is that it is too general for the detail, it just presents what to do, but it is also necessary to know how to do.
Uppsala School of internationalization: This theory is known as Uppsala model, it presents how the enterprises go on their activities step by step in the overseas markets. The theory can be explained as follows. The enterprises accumulate experiences in the domestic market before they go abroad. Then the enterprises begin their overseas business from the countries which have the close culture or geography, then approaching to the culturally and geographically more faraway countries. The enterprises will extend the foreign markets by this way gradually(Bell, 1995). The enterprises first start the overseas business by the traditional way like exporting, then more fortified and demanding ways will be adopted at the enterprises and the target markets. Generally speaking, this theory focuses on a kind of extending way from the narrow to the wide range. The internationalization will be fulfilled through this process.
On the basis of the analysis above, the two models have their own characteristics. As for the former one, the life cycle model, it focuses on the natural process of a product. It is fitting to the nature law. Almost every product has such kind of cycle. The cradle-to-grave is a vivid description. The development of this theory has a long history. Now, the important point of this theory is related to the environmental problems. A retired product can not be discarded merely. Some treatments should be adopted to avoid the potential environmental problems. This point has high accordance with present society. Because the environmental problems have became an international problems in the economic development. Generally speaking, this theory focuses on the practical manufacturing process. As for the latter one, it focuses on the process of extending.#p#分页标题#e#In another word, it emphasizes on the strategies the managers adopt in the extending process. This theory related to management closely. So the entrepreneurs have an important position because their innovation and creation are significant to the internationalization of the SMEs. Through the innovation more opportunities are created(Oystein Moen and Per Servais, 2002). The ability of the entrepreneurs is the decisive factor in a enterprise management. It is also a characteristic of the modern management. So the newer theory challenges the previous one. The newer one pays attention to the entrepreneurs, because people have creativity, activeness and plasticity. The new theory views the internationalization of the SMEs from a higher level. It does not just focus on the natural production process; the systematic and creative plans are required. Such kinds of requirements are based on the capacity of the entrepreneurs and their working team. The new theory has close relation with the modern management and the entrepreneurs.
The advantages and limitations of the internationalization of the SMEs
The internationalization of the SMEs has some advantages. On the micro perspectives, set an enterprise as example, in the internationalization process the enterprise will be enhanced in competitiveness. It maybe gain financial support from other investors or learn some new knowledge and technology. Some other situation as the low costs in the foreign countries also can bring the enterprise advantages. Some enterprises outsource the no-core skills to the countries which have cheaper resources in order to cut down the costs. All of this can enhance the competence and competitiveness of the enterprise; it will occupy a wider market share, have more target customers and make more profits. The entrepreneurs can not be ignored, all the advantages are based on their systematic and scientific strategies.In one word, as for an SME, the outstanding entrepreneur brings the SME a bright future through the internationalization. On the macro perspective, globalization is an unavoidable trend in various fields. So do the SMEs. The SMEs is a particular and really important part of the economy. Most of the employees are working for SMEs in the word-wide range. The SMEs are becoming stronger and stronger through internationalization; they can supply more working opportunities. Of course, they also are important strength to progress the world-wide economy as a significant element of the economy.The limitation: In the internationalization process, not all the SMEs can survive. It is similar to the "survival of the fittest law". An experienced and manageable CEO is really important for the SMEs in the internationalization process. The personality and the particular preferences of the managers really exert great influence on the enterprises. The commitment and persistence of the managers are also decisive factor for the development of the enterprises overseas. It needs more careful and attentive consideration in picking up an international CEO, more strict rules are required in worker employing. So the first limitation is the enterprises faced to more risk and challenge, once the wrong person was chosen, it will bring unimaginative result, and maybe it will bring an enterprise to the end. Besides those, the some additional competencies are needed in the internationalization process(Johanson & Nonaka, 1983). For example, the new language ability is required when the people deal with the international activities. The foreign countries have different regulations, laws and market situations, the international enterprises must spend time on learning and knowing these rules. All of these mean the firms overseas faced to more risk, challenge and danger in the internationalization process.
How do the SMEs survive overseas
It is known that the competitiveness among the SMEs is very fierce, If the SMEs want to survive through this process, they must adopt some feasible policies(Turnbull, 1987). First, usually the entrepreneurs do not have enough time and excellent capacity, the right policy is to implement some concrete tasks on behalf of the entrepreneur. As for some SMEs have no previous international knowledge, this policy is really suitable. Second, the previous studies revealed that most of the SMEs require specific and targeted supply. The enterprises should supply the services custom-built. For example, specified the services the enterprise can provide, there must be appropriate companies require the services; it is easy to identify the new cooperative partners. Third, exporting is a traditional way to internationalize, but it is not just exporting simply. All the policy measures, either the general or the specified, should give some consideration to the different approaches of internationalization.Besides exporting, some other activities such as collaboration and foreign sub-suppliers should be concerned, too. The last but not the least, as for some SMEs which only have foreign suppliers, they confront barriers easily in the internationalization process(Johanson and Mattsson, 1985). So the policy measures are required to make the enterprises enjoy a broad way. These are the important successful factors that influence the internationalization of the SMEs. If the entrepreneurs can consider these factors carefully, a lot of problems and barriers can be solved.
In the globalize economy, the SMEs as an important part of the economy should catch more attention in the present society, especially the internationalization of the SMEs. This essay presents some information related to the internationalization of the SMEs. Then two influential theories are presented. The life cycle model and the Uppsala model, the two theories have different focus (Michael，1998). The former pays more attention to the production process, from the cradle to the grave. It is a general description of the production process and does not pay attention to extending the market, the entrepreneurs' capacity and the outside factors except the production process itself. The latter focuses on the management, it realizes the final goal step by step. It approaches to the forward gradually.The next step is always based on the last step. It is a systematic and logical way to organize the developing plan. Comparing the two theories with each other, the latter is fit for the present requirement and trend. Although there are a lot of problems and barriers in the internationalization process, it is still an unavoidable trend(Baptista and Swann，1998). The SMEs will confront a lot of risk and challenges, such as the costs and other decisive problems. There are limitations and barriers, but the internationalization is still on the way. The final reason is the advantages weigh more than the limitations. The future of internationalization is bright and attractive; the enterprises need seek for larger market, wider developing space, greater survival opportunities and new vigor from the foreign countries.What is more, it can bring more opportunities and potential profits for the enterprises. The Uppsala model can be a guide for the internationalization of the SMEs. It pays attention to the entrepreneurs, which is suitable for the requirement of modern management. To sum up, according to the final goal of business activities, the internationalization of the SMEs is an avoidable trend in the globalize economy, the Uppsala model is specified for the internationalization. It contributes a lot to the development of the SMEs, the internationalization of the SMEs have various advantages for the SEMS themselves as well as the whole word-wide economy.
Patricia Phillips McDougall, Benjamin M. Oviatt.(2000).International Entrepreneurship: the Intersection of Two Research Paths. Academy of Management Journal. 43,(5),902-907.
Oviatt B.M., McDougall P. P. (1999).A framework for Understanding Accelerated International Entrepreneurship. Research in Global Strategic Management. 7. 23-40
Jolly, Alanhuhta, M.and Jeannet, J.P. ( 1992)Challenging the Incumbents: How High Technology Start-ups Compete Globally. Journal of Strategic Change. 1,71一82.
Oystein Moen and Per Servais, (2002)Born Global or Gradual Global? Examining the Export Behavior of Small and Medium-sized Enterprises . Journal of International Marketing .l,(3),49-72.
Bell, Jim.(1995).The Internationalization of Small Computer Software Firms: A Further Challenge to Stage Theories. European Journal of Marketing. Vol. 29 (8), 60-75.
Johanson, Jon. And L.G Mattsson.(1985).Marking Investments and Market Investment in Industrial Networks. International Journal of in Marking. 2(3) ,185-195
Turnbull, P.(1987).A Challenge to The Stages Theory of the Internationalization Process. In Managing Export Entry and Expansion-Concepts and Practice. New York: P.J Rossom and S.Reid.Praeger.
Johanson J .U. &Nonaka I.(1983).Japanese Export Marketing Structures, Strategies, Counter Strategies. International Marketing Review, 1(2):12一25.
Baptista R. and Swann P,(1998).Do firms in Clusters Innovate More? Research Policy .(27): 525-540.
Michael E·(1998)Porter Clusters and the New Economies of Competition.
Harvard Business Review. (Nov. – Dec.):78- 92.