Internationalization Model

The internationalization process of the firm has been of interest to researchers for decades. Indeed, the process of internationalization has been the subject [Page 915]of widespread theoretical and empirical research. Over this time, the views about the process of foreign expansion and about drivers explaining the logic of the process have evolved.

One difficulty with scholarship relating to internationalization is that most of the research has concentrated on large firms, using cross-sectional studies or case studies and often focusing on one country of origin. However, the internationalization of smaller firms across different countries and regions has increasingly been of more practical concern to international business. More particularly, small and medium-sized firms (SMEs) and their role in the internationalization process are gaining increasing attention by both academics and the business community. This is so because the fall in trade barriers over the last few decades, the increasing importance for the world's economies of innovation and new technology, and the general expansion in globalization have meant a growing role of SMEs in international markets. While there has been research on the applicability of international models to SMEs, they are decidedly limited. Yet, the internationalization process of SMEs has paramount importance for economic development, especially in smaller economies where local markets cannot by themselves sustain growth. Continued economic expansion in these economies requires their SME population to successfully enter into foreign markets.

Recent investigations that do exist have in particular examined the rise within, and internationalization of SMEs from, a growing range of Asian and eastern European countries. With respect to the situation in eastern Europe, we observe that, as the European Union (EU) has expanded and become more internally integrated, central and eastern European SMEs find themselves with greater access to international markets. Thus attention increasingly has been shifting to how these so-called transition economies—Hungary, Poland, the Czech Republic, the Baltic States, etc.—can effectively compete internationally with western Europe and the United States. The rise of entrepreneurial SMEs in Asia and eastern Europe, and their ability to generate value added by operating in the global arena, is seen as key to the eventual success of these countries.

Over the last three decades, several internationalization theories have evolved. Some have concentrated only on development of exports and on the steps prior to exports. For example, S. T. Cavusgil distinguished five steps or stages involved in the evolution of exporting activity of firms. These various other studies distinguish between “lower,” “middle,” and “higher” stages of export involvement.

Entry Modes

There have been studies that look at the reasons why SMEs increase the breadth and depth of their exporting activities. When barriers arise to internationalization, these investigations tend to focus on internal problems in a country, such as political instability, decaying infrastructure, and so forth. But beyond this more empirical focus are broader theories that see internationalization as advancing either in increments (staged) or “rapid leaps.” In the former case, rapid SME internationalization is assumed unlikely because of financial constraints, the lack of international market experience or information, cultural friction, and other factors. Thus the incrementalists hold that SMEs will internationalize and create value for a country in an evolutionary manner, first undertaking the least complex forms of entry (e.g., exporting) and then evolving into more complicated types of market entry strategies—from the rather passive forms of contracting work (e.g., becoming part of an outsourcing network) to the more active entry modes of licensing, joint venturing, and merging and acquiring.

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