1
International Activities in Small Firms:
Examining Factors Influencing
the Internationalization and Export
Growth of Small Firms
Svante Andersson, Jonas Gabrielsson and Ingemar Wictor
S
mall firms are becoming increasingly international. Small firms are reported
to contribute 25 to 35% of world exports of manufacturers, and about onefifth of manufacturing small firms receive between 10 and 40% of their
turnover from cross-border activities (OECD, 2000). Moreover, small firms seem to
get into the international scene at a much earlier age than before, and they are also
more actively pursuing strategies that involve international activities (Knight, 1997;
McDougall & Oviatt, 2000; McDougall, Shane, & Oviatt, 1994; Reynolds, 1997).
These internationally active small firms also tend to grow faster than their
domestic equivalents. The international activities of small firms are consequently
attracting growing interest from scholars interested in internationalization, entrepreneurship, and small business growth.
Previous conceptualization and empirical research on firm internationalization
has been heavily focused on large multinational enterprises and these models have
been used as the lens for understanding firm internationalization in other empirical
settings (Ibeh, 2000). An influential theoretical starting point to explain firms’
international development has been different types of stage and process models
(Bilkey & Tesar, 1977; Cavusgil, 1980; Johansson & Vahlne, 1977, 1990; Reid, 1981).
A basic assumption in these models is that firms internationalize in an incremental,
stepwise, and gradual process for gaining increased experiential knowledge and
reduced risk (Johanson & Vahlne, 1990; Loustarinen, 1979). According to the
Uppsala School of Internationalization (Johanssson & Vahlne, 1977, 1990), firms
begin with their home markets and then gradually internationalize in a stepwise
manner. This means that the organization slowly builds up its knowledge regarding
foreign cultures, languages, political systems, level of industrial development and
so on (Johanson & Wiedersheim-Paul, 1975).
The gradual stage model of a firm’s international development has been criticized from various angles and numerous studies point out that the stage models
may not be fully able to explain the internationalization of small firms in today’s
global markets (Andersen, 1993; Andersson, 2000; Bell, 1995; Crick & Jones, 2000;
Knight, 1997; McDougall et al., 1994). A study of Australia’s high exporters, for
Source: Canadian Journal of Administrative Sciences, 21(1) (2004): 22–34.
2
Small Business Exporting: Adoption of Innovation
example, spotlighted the rise of numerous small firms that successfully competed –
virtually from their inception – against large, established players in the global
arena (Rennie, 1993). The study coined the concept of “born globals”, and it was
followed by numerous studies on the same phenomenon under names such as
born globals (e.g., Andersson & Wictor, 2003, Knight & Cavusgil, 1996; Madsen,
Rasmussen, & Servais, 1999; Madsen & Servais, 1997), global start-ups (Oviatt &
McDougall, 1995), international new ventures (McDougall et al., 1994), and instant exporters (McAuley, 1999). Even though the born global phenomenon is
probably more common today, when internationalization may be less complicated
and risky because of lower trade barriers and cheaper and taster transportation and
communication, it is not an entirely new phenomenon. For example, Buckley,
Newbould, and Thruwell (1979) studied initial entry modes in the United Kingdom,
and Roux (1979) studied French firms. Ganitsky (1989) investigated Israeli instant
exporters and Garnier (1982) noted the same phenomenon in a Canadian study.
Chang and Grub (1992) found born globals in Taiwan, and Lindmark, Christensen,
Eskelinen, Forsström, Sörensen, and Vatn (1994) found born globals in the Nordic
countries. Consequently, there is abundant empirical evidence showing that not all
firms internationalize gradually in a stepwise manner; some firms internationalize
quickly and right from their inception.
Taken together, it seems that the general stage model theory of international
activities may not be able to fully explain international activities in small firms.
The Uppsala Model does not, for example, explain why some small firms start
to internationalize, while others stay in the domestic market. Much is also still
unknown as to why some international small firms tend to slow down their expansion, while others continue to expand in different markets. Even though the
importance of complementing existing theories of firm internationalization with
empirical studies of the international activities of small and entrepreneurial firms
has been widely acknowledged (Westhead, Binks, Ucbasaran, & Wright, 2002;
Zahra & George, 2002), there arc very few empirical studies with this focus. Consequently, there is a need to develop and contextualize previous concepts mid
models to understand different types of international strategies developed by small
firms with diverse characteristics operating in different environments.
Based on the discussion above, we have two main research objectives in this
paper. First, we want to identify and empirically test a set of relationships between
contingent factors and the international activities of small firms in order to explain
why some small firms become international while others choose to operate in the
domestic market.1 Second, we want to investigate whether these contingent factors
can also explain why some international small firms continue to expand and grow
their international activities, while others do not. The overall aim of the study in
this respect is to question the assumption that small firms start with their home
markets, and then gradually start to internationalize in a stepwise manner as they
grow in size and age. The study examines how various critical contingencies in
a company’s internal and external environment, such as firm-specific as well as
CEO- and industry-specific characteristics, may determine a firm’s decision to
internationalize or not.
The paper will proceed as follows. First, we present a literature review with
concepts and arguments from international business and small firm literature; we
identify contingent factors that can be hypothesized to influence the international
activities of small firms. There after follows the methods section in which we present
Andersson et al. z International Activities in Small Firms
3
the sample and variables of the empirical study. Then we present the analysis and the
results, and the paper ends with a discussion and conclusions.
Literature Review
Several theories exist to explain why and how firms develop their international
activities (Ibeh, 2000). Common assumptions are that firms are risk averse, that
they go international to reduce risk (Knickerbocker, 1973), and that firms progress
from domestic to international markets in an orderly and risk-averse manner
(Johanson & Vahlne, 1977). Domestic business conditions have, however, become
increasingly influenced by international economic factors, and the ability for small
firms to isolate themselves from foreign competition has decreased, especially
for firms that operate in global industries. This is illuminated by the integration of the
European market, where deregulations have made it easier for small firms to deliver
products beyond the region where the firm is located (Andersson, 2000). Hence,
due to the pace of technological change, declining government-imposed barriers,
and the rapid globalization of markets (Hitt, Ireland, Camp, & Sexton 2001), the
time is ripe to question and investigate earlier conceptualization and explanations
of why firms are involved in international activities.
We will develop the research model of this paper using concepts and arguments
from literature on internationalization, entrepreneurship, and small business. The
paper will hypothesize about the relationship between the internationalization of
small firms and six contingent factors: (a) the size of the firm, (b) the age of the
firm, (c) the technology level in the firm, (d) the age of the CEO, (e) the occurrence
of planning in the firm, and (f) the perceived dynamism in the firm’s environment.
This contingency approach to internationalization views foreign expansion and
export as dependent upon the specific situation of the small firm. Hence, export is
seen as being influenced by variations in firm resources, managerial characteristics,
planning procedures, and market opportunities (or lack of market opportunities).
The size and age of the firm as explanatory factors for increased international
activities are derived from the stage and process literature. This stream of literature
claims that knowledge in the firm is acquired over time, which in turn will lead
to increasing international commitment as organizations develop over time (e.g.,
Johanson & Vahlne, 2003). The occurrence of planning in the firm is derived from
literature on strategic planning in small firms that claims that strategic planning
is crucial for firms’ survival, as well as continuous domestic and international
growth (e.g., O’Gorman, 2000). The technology level, the age of the CEO, and
the perceived dynamism in the firms’ environment is derived from literature on
international new ventures that claims that the CEO or entrepreneur in the firms,
as well as the technology level and industrial environment, affects international
development (Andersson & Wictor, 2003; McDougall, Oviatt, & Shrader, 2003).
The basis for these six factors will be further discussed in the following section.
Firm Size and Age
Both firm size and firm age have traditionally been used as the main predictors of
a firm’s international activities. The stage theory of internationalization assumes
4
Small Business Exporting: Adoption of Innovation
that firms progress from domestic to international markets in an orderly and riskaverse manner and suggests that there is a need for a critical mass in firm size
before internationalization may take place (Johanson & Vahlne, 1977). Important
arguments in explaining the internationalization of firms are thus the control over
resources (financial, technological, personnel) and the advantages of economies of
scale. The theory tells us that small organizations internationalize stepwise. The
majority of small firms suffer from severe resource constrains (Stinchcombe, 1965;
Storey, 1994) and many researchers maintain that large firms are therefore more
likely to compete in international markets than small firms (Bonaccorsi, 1992;
Calof, 1993). By growing larger, firms will be able to commit greater resources
to international activities and gradually increase their share of sales derived from
international markets. Hence, the larger the firm, the more resources available
for developing the firm’s international activities. Based on these arguments we
propose the following hypothesis:
H1: The international activities in small firms are positively related to size of
the firms.
Another argument explaining gradual and stepwise internationalization is
that firms need to develop their knowledge of foreign markets before they can
allocate extensive resources to these markets (Johanson & Vahlne, 1977, 1990).
Understanding new cultures, languages, and distribution systems is a timeconsuming and gradual process. Thus, firms may have to develop certain routines,
skills, and legitimacy for some years to overcome the liability of newness and
smallness (Stinchcombe, 1965) and to reach a minimum economic size that is
needed for success on the international market. Gaining knowledge consequently
reduces the perceived risk of operating in foreign markets and can motivate the international expansion of the firm (Johanson & Vahlne, 1977). Hence, the age of the
firm may be important in explaining the internationalization of small firms. This
leads us to the following hypothesis.
H2: The international activities in small firms are positively related to the age of
the firms.
The Technology Level of the Firm
Researchers have found that the level of technology may be an important factor in
explaining the internationalization of small firms and that high-technology companies are more international than low-technology companies (Crick & Jones, 2000).
A process of rapid internationalization may, for example, be essential for achieving
necessary sales volumes before the technology becomes obsolete or imitated by
other firms (Lindqvist, 1997). Furthermore, much of the literature treating the
born global phenomenon has been connected with new industries and hightechnology-based sectors (Crick & Jones). However, the phenomenon has in later
research been found also in other “old” and mature sectors, such as the arts and
crafts business (McAuley, 1999). Madsen & Servais (1997) connect that with the
size of the home market. Born global firms originating from large home markets
are mostly found in high-technology-based sectors, while born globals in smaller
Andersson et al. z International Activities in Small Firms
5
countries are mostly found in other sectors. The information technology and
e-commerce sectors are examples of industries with new technology that sometimes
can be regarded as high-tech industries. We propose the following hypothesis:
H3: The international activities in small firms arc positively related to technology
level of the firm.
CEO Age
A key variable in explaining the internationalization of small firms is the decisionmaker in the firm (Andersson, 2000, 2002). Surprisingly, relatively few studies
have empirically explored the relationship between CEO characteristics and
firms’ internationalization (Westhead, Wright, & Ucsbasaran, 2001). Bloodgood,
Sapienza, and Almeida (1996) found that greater international work experience
among top managers was strongly associated with greater internationalization of
new high-potential ventures in the U.S. Westhead, Wright, and Ucbasaran (2001)
also found that older founders with more resources, denser information and
contact networks, and considerable management know-how were significantly
more likely to become exporters, especially where industry-specific knowledge
and experience were important. McDougall et al. (1994) and Madsen and
Servais (1997), moreover, both concluded that the background and experience
of the entrepreneurs had a large influence on the appearance of born globals.
Moreover, McDougall et al. (2003) found that international experience, industry
experience, and technical experience were significantly different between international and domestic new ventures. In small firms, the decision power is often
concentrated in the hands of one or a few persons and the CEO has a unique and
influential role in the organization (Begley & Boyd, 1987; Chandler & Jenson, 1992).
The age of the CEO may, in this respect, reflect the life-long experience and personal network of an individual.
Hence, we propose the following hypothesis:
H4: The international activities of small firms are positively related to age of
the CEOs.
Formal Planning Meetings
Planning is often considered to be a crucial element in small firms’ ability to survive and grow (O’Gorman, 2000). Research into strategic planning has given empirical support that engagement in continually reviewing strategies and long-term
plans in small firms may increase the strategic alternatives available to the firm
(e.g., Lyles, Baird, Orris, & Kuratko, 1995; Mueller & Naffziger, 1999; Robinson &
Pearce, 1984). Studies have shown that firms with market planning are much
more likely to engage in international activities (Aaby & Slater, 1989; Ibeh, 2000);
however, few CEOs find enough time to focus on such strategic planning procedures
(Castaldi & Wortman, 1984; O’Gorman; Robinson, 1982). Moreover, many ownermanagers have no marketing experience, and even less knowledge of export
markets (O’Gorman). Hence, small firms tend to devote time and resources to
6
Small Business Exporting: Adoption of Innovation
innovation and product development, while little attention is spent on finding
new markets for the products. Strategic planning may, in this respect, result in the
consideration of domestic as well as international alternatives which otherwise
may not have been thought of (O’Gorman). The above discussion suggests that
small firms’ formalized meetings – for the purpose of planning, reviewing, and
developing strategies and long-term plans – influence international activities of
the firm.
H5: The international activities of small firms are positively related to the number
of formalized meetings.
Industry Environment
The specific industry environment in which organizations operate can have an
impact on the strategic direction of a firm (Miller & Friesen, 1984). A fast-changing
and dynamic environment may, for example, provide firms with opportunities
for pursuing innovative strategies, but may also lead to greater pressure – from
competitors, technological progress, rivalry among competitors, regulatory developments, and so on (Zahra, 1991, 1993; Zahra, Neubaum, & Huse, 1997).
Such continuity of changes may create new venturing opportunities, but it also
intensifies rivalries by encouraging new firms’ entry into the market. Boter and
Holmquist (1996) found that the industry environment was a greater determinant
than nationality when it came to understanding the international behaviour of
small firms. They distinguished between two types of companies: conventional
and innovative. They found that innovative companies had a global focus and
that these companies were not bounded by industrial wisdom. Rather, innovative
companies tried to create their own niches where they could act with an industrial
ignorance. They found that it was the newness, not the level, of technology that
was of importance. New technology gave the company a greater freedom of
strategic choice. The industry concept is ambiguous and official statistics do not
always give a current view of a firm’s industry. Among suppliers, the customer’s
industry membership is of greater importance and influence than the firm’s
(Andersson, 2002). This leads us to the following hypothesis:
H6: The international activities in small firms are positively related to the degree
of environmental dynamism experienced in the industry.
Method: Sample and Variables
To test the hypotheses by statistical analysis, this study was designed as a questionnaire survey. We used two criteria for identifying a suitable sample. The first
criterion was that the firms could be considered “small”. The operational definition
of small firms varies widely among empirical studies of small businesses (Brooksbank, 1991; d’Amboise & Muldowney, 1988). The most widely used categorization
of small firms in Europe-based research seems to be employment size (e.g., Carter &
Jones-Evans, 2000; Jones & Tilley, 2003; Storey, 1994). Our criterion for small
Andersson et al. z International Activities in Small Firms
7
firms was set to include firms with 10 to 50 employees, in accordance with the
statistical definition of small firms in the European Union.
The second criterion was that the firms should operate in similar industries
to control for potential industry differences. The industries chosen to meet the
second criterion were (a) manufacturing of electronic machines and components
(210 firms); (b) manufacturing of electronic communication equipment (75 firms);
and (c) manufacturing of optics/medicine/photo equipments (166 firms). These
industries were also considered suitable because these firms have a broad market
for their products, not just a country or region.
The selection criteria resulted in a list of 423 small Swedish manufacturing
firms. An important choice was who should provide the information (i.e., the
informant in the targeted firms). We reasoned that the CEO would be the best
target, as prior research has found that CEOs have overview and direct access to
information sources within the organization, and also have extensive control over
the business activities undertaken (Begley & Boyd, 1987; Chandler & Jensen, 1992;
Miller & Tolouse, 1986). We therefore decided that the questionnaires should be
sent to the CEO in each of these 423 small firms. Postal addresses were collected
from Statistics Sweden. A control question was included in the questionnaire to
ensure that only the CEO answered the questions.
Dependent Variable(s)
The overall aim of the study is to examine whether the various critical contingencies
in a company’s internal and external environment can explain the firm’s involvement in international activities. In order to meet this overall aim, the paper will
address two main research objectives. First, it will set out to investigate contingent
factors that may explain why some small firms can be considered international
(i.e., have a significant proportion of their revenue derived from foreign sales).
For meeting the first research objectives, we use a dichotomous dependent variable.
The firms are divided into two groups: one consisting of firms with less than 25%
of total sales from exports, and another with 25% or more of total sales derived
from exports.
The second research objective is to investigate if these contingency factors also
can explain why some internationalized small firms (i.e., the small firms that have
already attained 25% or more of total sales from exports) continue to expand
their international activities. For meeting this research objective, we use a metric
dependent variable. This variable is measured as the mean of the following two
measures: the natural log of the number of countries the firm exported to, and the
natural log of the number of new countries to which the firm has been exporting
in the last three years (alpha = .53).2 This measure is expected to capture the
magnitude and growth of export in internationalized small firms.
Independent Variables
Corresponding to our hypotheses, six contingency variables expected to influence
the international activities in small firms were selected. The independent variables
were measured as follows:
8
Small Business Exporting: Adoption of Innovation
1. Firm age was measured as the number of years that has passed since the
firm was founded.
2. Firm size was measured as the natural log of the number of employees
reported in 1999.
3. The technology level of the firm was measured as a dichotomous dummy
variable, indicating if the company was involved in high-technology
production (=1) or not (=0).
4. CEO age was measured as the age of the responding CEO.
5. The environmental dynamism was measured on a 5-point Likert type of
scale, ranging from very low (1) to very high (5). This measure was taken
from Zahra et al. (1997).
6. Two separate variables were used as proxies for the number of formalized
meetings. The first one measured the number of weekly management meetings held in the small firms during the last year. The second one measured
the number of formal board meetings held in the small firms during the
last year.
Results and Analysis
The final sample included usable responses from 135 firms, which corresponds to
a response rate of about 32%. About one-third (36.3%) of the companies operated
in the domestic market, or were only experimental exporters (with a maximum
of 10% sales from exports), while almost a fifth of the companies had 70% or
more of their total sales from export. Nearly two-thirds (61.7%) of the firms in
the sample were experiencing growth, and 29.8% considered themselves as being
involved in high-technology production.
The responding companies had a mean of 24.5 employees and average total
sales of about 30.5 million Swedish crowns (corresponding to approximately
3.3 million euro). In over half of the companies (61%) the original founder was
still involved in either the management or governance of the business. In the cases
where founders were still active, they held the position of CEO in 83.5% of the
companies, another executive position in 8.9%, and board member in 7.6%.
Tables 1 and 2 display Pearson product moment correlation of the variables in
the study. Table 1 presents the correlations for the whole original sample (135 small
firms). Table 2 presents the correlations for the 65 small internationalized firms.
Table 1: Correlation matrix (n=135)
High tech
Intern. SME production Firm size
Intern. SME
High tech prod.
Firm size
Firm age
CEO age
Dynamism
Formal man. meetings
Board meeting freq.
–
.18∗
.12
.05
.07
.23∗
–.18∗
.17∗
∗∗ Significant at the .01 level.
∗ Significant at the .05 level.
–
–
–.09
.07
.05
.32∗∗
.13
–.07
–
–
–
.13
–.09
.07
–.17∗
–.01
Firm age
–
–
–
–
.08
–.19∗
–.15∗
.00
CEO age
–
–
–
–
–
.06
.08
–.02
Dynamism
Mgmt
meetings
–
–
–
–
–
–
.08
.04
–
–
–
–
–
–
–
–.13
Andersson et al. z International Activities in Small Firms
9
Table 2: Correlation matrix (n=68)
Export growth
High tech prod.
Firm size
Firm age
CEO age
Dynamism
Formal man. meetings
Board meeting freq.
Export
growth
High tech
production
Firm size
Firm age
–
–.06
.21
.24∗∗
–.37∗∗
–
–
–.23∗
.06
.04
–.14
.08
–.13
–
–
–
.11
–.07
.20
.05
–.11
–
–
–
–
.04
–.14
.08
–.13
.09
–.07
.03
CEO age
Dynamism
Mgmt
meetings
–
–
–
–
–
–
–.02
.14
–
–
–
–
–
–
–
–29∗
–
–
–
–
–
.06
.11
–.03
∗∗ Significant at the .01 level.
∗ Significant at the .05 level.
Analysis for the First Research Objective
To meet our first research objective, we need to ascertain if the six identified
contingency factors can explain why a company has internationalized. The first
research objective is, therefore, to analyze the multivariate relationship between
a mixed set of metric and categorical covariates (the factors hypothesized to influence the international activities of a firm) and a binary dependent variable (the
two cases of either being an internationalized small firm or not). Thus, we need
to deploy a procedure that can estimate the probability of the expected event
(i.e., internationalization) occurring. For metric dependent variables, multivariate
regression can be used; however, as we have binary dependent variables and
several metric or dummy-coded variables in our first research question, logistic
regression is more appropriate. Logistic regression is a statistical analysis aimed
at predicting and exploring a binary (two-group) categorical variable, where the
relative impact of each predictor variable is identified. It differs from multiple
regression analysis in that it directly predicts the probability of an event occurring
(Hair, Anderson, Tatham, & Black, 1998). This statistical technique consequently
enables us to identify which variables, among a set of multiple interacting factors,
are the most salient in categorizing companies as internationalized or not. Table 3
displays the results of the logistic regression.
The chi-square test of the final model (all covariates included) was significant
(.01-level) and indicates that a significant relationship exists between the entire set
of independent variables and the dependent variables. The Hosmer and Lemenshov
measure (measuring the correspondence of the actual and predicted value of the
dependent variable) was also non-significant, another indicator of a good model
fit.3 The R2L ratio, based on the improvements in the log-likelihood value, was
0.140. This R2L is comparable to the R2 in linear regression (Hair et at., 1998).
In Table 3 we have presented B (the odds ratio), standard deviation (S.E.), and
the Wald statistics. The predicted values of the dependent variable (B) concern the
“log-odds” that an event will occur, and the interpretation is thus analogous to that
of linear regression (Hair et al., 1998). A positive regression coefficient implies
that an increase in that variable is associated with a higher likelihood of broader
involvement in international activities. An asterisk marks significant regression
coefficients. The Wald statistics tests whether the individual regression coefficient
differs from zero (parallels the use of the t-ratio in linear regression).
10
Small Business Exporting: Adoption of Innovation
Table 3: Logistic regression
Independent variables
High tech prod.
Firm size
Firm age
CEO age
Dynamism
Formal management meetings
Board meeting frequency
-2 log-likelihood (initial model)
-2 log-likelihood (final model)
Chi2 (df)
R2L
B
.52
.50
.00
.02
.86∗
–.02†
.18†
158.3
144.3
20.7(7)∗∗
S.E.
Wald
.52
.39
.01
.02
.39
.01
.11
1.02
1.60
.00
.69
4.85
2.82
2.80
.140
∗∗ Significant at the .01 level.
†
Significant at the .05 level.
†
Significant at the .10 level.
The hypotheses for our first research objective were supported/not supported
as follows:
H1: We found no support for the relationship between the size of the firm and the
international activities of small firms. The hypothesis was not supported.
H2: We found no support for the relationship between the age of the firm and
the international activities in small firms. The hypothesis was not supported.
H3: We found no support for the relationship between the technology level of the
firm and international activities in small firms. The hypothesis was not supported.
H4: We found no support for the relationship between the age of the CEO and
international activities of small firms. The hypothesis was not supported.
H5: We found no support for the relationship between the number of formalized
meetings and international activities in small firms. The hypothesis was not
supported.
H6: We found support for a positive relationship between the degree of perceived dynamism and international activities in small firms. The hypothesis was
supported.
Analysis for the Second Research Objective
The second research objective is to identity factors that may explain why some
internationalized small companies continue to expand their international activities, while others do not. As we have a metric measure as the dependent variable
(magnitude and growth in export) and several metric or dichotomous independent
variables, multiple regression can be considered as an appropriate statistical
technique (Hair et al., 1998).
Table 4 displays the results of the regression analyses. To have some control
of colinearity and be able to see the separate effects of the control variables,
we entered the independent variables stepwise. The table reports the adjusted
R-squares for the full model. Beta coefficients for the full model are also presented
in the table. The hypotheses are directly linked to each of the independent variables in the model.
Andersson et al. z International Activities in Small Firms
11
Table 4: Multiple regression
Beta
High tech prod.
Firm size
Firm age
CEO age
Dynamism
Formal management meetings
Board meeting frequency
Mult R
R Square
Adj R Square
F (F-sign)
–.08
.18
.34∗∗
–.39∗∗
.21
.01
.06
.553
.306
.200
2.89∗∗
∗∗ Significant at the .01 level.
∗ Significant at the .05 level.
As can be seen in Table 4, the full model for the total sample was significant
(F = 4.27∗∗). The hypotheses for the second research objective including the
firms with over 25% of their sales generated from exports were supported, or
not supported, as follows:
H1: We found no support for the relationship between the size of the firm and
the export growth in internationalized small firms. The hypothesis was not
supported.
H2: We found support for a positive relationship between the age of the firm and the
export growth in internationalized small firms. The hypothesis was supported.
H3: We found no support for the relationship between the technology level of the
firm and the export growth in internationalized small firms. The hypothesis was
not supported.
H4: We found support for a negative relationship between the age of the CEO and
the export growth in internationalized small firms as hypothesized, but there is a
significant relation in the opposite direction.
H5: We found no relationship between the number of formalized meetings and
the export growth in internationalized small firms. The hypothesis was not
supported.
H6: We found no support for the relationship between the degree of perceived
dynamism and the export growth in internationalized small firms. The hypothesis
was not supported.
Discussion
The overall aim of the study was to examine how various critical contingencies in
a company’s internal and external environment can explain a firm’s involvement,
or not, in international activities. To meet this overall aim, the paper addressed
two main research objectives. First, we needed to investigate contingent factors
that may explain why some small firms can be considered internationalized, that
is, drawing a significant proportion of their revenues from foreign sales. Second,
the paper investigated if these contingency factors also can explain why some
internationalized small firms (i.e., the small firms that already have 25% or more of
12
Small Business Exporting: Adoption of Innovation
total sales from exports) continue to expand their international activities, while
others do not.
The findings indicate that high levels of environmental dynamism experienced
in the industry can explain why some small firms become involved in international
activities. However, once a significant proportion of revenue is derived from
foreign sales (25%), it is the age of the firm (older firms) and the age of the CEO
(younger CEOs) that influence small firms to continue to grow their international
activities. This means that factors influencing the decision to go abroad and become
international may differ from the reasons why small firms continue to expand
their international activities once they are operating in the global marketplace.
The results consequently suggest it is dynamic and fast-changing environments
that may push small firms to expand their operations abroad, while it seems to
be the experience and connections the organizations build up with the prevalence
of younger CEOs that enable small firms to further the expansion and growth of
international activities. The findings are discussed in more detail below.
Factors Explaining Why SMEs are Involved in
International Activities
The main contingent factor that was able to explain why some firms can be
considered internationalized was the environmental dynamism experienced by
the CEO. Dynamic and fast-changing environments seem to push small firms to
go abroad. In dynamic environments there may be a lot of international opportunities emerging due to the inherent volatility of surroundings; however, to be
a committed exporter a firm must direct resources towards these international
activities. Internationalization is an investment that needs resources in the beginning that will not result in fast returns. To start activities abroad (e.g., to
establish subsidiaries) it is important that internationalization becomes an integral
part in the firm’s overall strategy; however, as the analysis of the whole sample
of firms showed, neither age nor size can explain why firms derived a critical
proportion of sales from exports. If experiential learning played an influential
role in internationalization of small firms, one would logically expect that the age
and size would have explained whether firms actually internationalized or not.
However, our findings point to the contrary.
The results indicate that we need more attention and further examination
of perceptions and behavioural traits at the individual level in international
entrepreneurship research. Our findings suggest that future research will have to
go beyond variables related only to firm size and age, and also study cognitive
components of CEO behaviour, experience, motivation, and beliefs (Harveston,
Kedia, & Davis, 2000). The individuals’ careers should also be followed through
different firms, which could be done by longitudinal case studies and surveys with
data collected at different points in time (Westhead et al., 2001).
Although we measured CEOs’ perception of the environment in this paper, the
sampled firms were drawn from three related industry sectors (i.e., firms involved
in high-technology-based manufacturing) as discussed earlier. It is consequently
possible that the internationalized small firms in this sample could be those firms
Andersson et al. z International Activities in Small Firms
13
where CEOs have found dynamic niches within an industry, where they have been
able to take advantage of international opportunities.
Factors Explaining the Degree of Internationalization of
Already Internationalized Small Firms
In our analysis for the second research objective, we found that the age of the firm
(older small firms) and the age of the CEO (younger CEOs) could explain why
smaller firms continue to expand their international activities. The first result is
in line with the traditional Uppsala School (Johanson & Vahlne, 1977, 1990) and
different stage models that argue that international activity will create learning
and more knowledge on internationalization. To be able to expand abroad it
consequently seems important that knowledge about internationalization becomes
an important part of the firm’s strategy (Eriksson, Johanson, Majkgård, & Sharma,
2000). It is also interesting that the age of the firm could explain export growth, but
not why firms were internationalized or not. This is in line with Autio, Sapienza,
and Almeida (2000), who found that firms that do not become international in
their early years might introduce organizational routines that reduce the chances of
spotting and realizing foreign market opportunities later on in their development.
The experience that is built up during years in organizations thus seems to be an
important predictor of the international growth of small firms.
The second result, that the age of the CEO (younger CEOs) could explain
why smaller firms continue to grow their international activities, also indicates
that the younger generation of CEOs see the world as their marketplace and push
for increased international activities. An explanation may be that the younger
generation of CEOs may have been much more exposed to the international arena,
due to, for example, development in information technologies that reduce limits of
time and space, and increased opportunities to enroll in schools in other countries.
The mere exposure to the international arena that younger CEOs have had can
have an impact on their understanding of, and familiarity with, foreign market
conditions and the creation of international business opportunities associated with
them. Tihanyi, Ellstrand. Daily, and Dalton (2000) found accordingly that younger
management teams (including CEOs) were more international, which is in line
with Hambrick and Mason’s (1984) prediction that younger executives would be
more likely to make risky, but potentially rewarding decisions.
The results are in line with studies that focus on the cognitive aspects of
entrepreneurs; CEOs understand that small firms, especially from small home
markets, are growing internationally (Andersson, 2000; Andersson, Wictor, &
Gabrielsson, 2001; Oviatt & McDougall, 1995; Westhead et al., 2001). A fruitful
research design for intensified studies could be to do longitudinal studies with the
individuals as the focus. Based on the knowledge that the strategic choices and performance levels of organizations can be viewed as reflections of the values and
cognitive bases of powerful actors in the company (Hambrick & Mason, 1984), it
would of both practical and scholarly importance to the empirical investigation of
the linkages between characteristics of the CEO and the international activities
of small firms.
14
Small Business Exporting: Adoption of Innovation
Conclusion
The rapid technological progress, advances in telecommunications and technology,
and the deregulation of markets have led to a fiercer international competition
(Hitt et al., 2001). This has put the study of the internationalization of small
firms high on the research agenda (Oviatt & McDougall, 1995) and the interest in
the intersection between entrepreneurship and internationalization has recently
received much interest (McDougall & Oviatt, 2000; Zahra & George, 2002). A
significant development in research on internationalization has been research on
the role played by small firms in international markets (Lu & Beamish, 2001).
In this paper we have highlighted the need to identify the partial and situational
relevance for various internationalization models (Ibeh, 2000). By using a contingency approach to explain the international activities of small firms, we identify
contingent factors that explain why a firm starts to go international and why firms
continue to grow their international activities.
In this paper, we found that it is mainly the CEO’s perception of a dynamic
and fast-changing environment that seems to explain why some small firms are
involved in international activities. However, once a significant proportion of their
revenue is derived from foreign sales, it is the age of the firm and the age of the
CEO that seem to explain why some small firms continue to grow their international
activities. This study shows that it is fruitful to split the complex phenomenon
of internationalization into different parts. While a dynamic and fast-changing
environment may push small firms to go abroad, it seems to be the accumulated
experiences in the organization, together with a younger generation of CEOs,
which enable small firms to further expand their international activities.
While the empirical findings in this paper are intriguing, caution should be
taken when generalizing the findings beyond the scope of this study. The results
come from a study of small Swedish firms, and the findings may be specific to this
setting. Sweden, with about 8.9 million inhabitants, has a small domestic market
compared with North America, and this situation has historically forced Swedish
entrepreneurially minded firms to increase their international activities in order
to grow and increase profits. Future research attempts should be made in order to
extend the generalizability of the results found in this study, and comparative
samples of firms should be used.
Another potential limitation with this study is that it examines internationalization
only in terms of international revenues. Recent research has found that alliances
with partners in foreign markets can be an effective strategy to overcome the
deficiencies small and medium-sized enterprises (SMEs) face in resources and
capabilities when expanding their activities abroad (Lu & Beamish, 2001). Future
studies should include other measures such as the number of geographical markets
served (McNaughton, 2003) and other forms of internationalization, including
foreign sourcing (Servais, 2001) and foreign R&D alliances. Another limitation
is that the study is carried out in one country in a limited number of industries.
Further studies in more countries and industries are recommended.
The findings in this paper call for further and intensified studies of how small
firms may succeed when operating in foreign markets. For example, the study
indicates that theories focusing on the perception of the environment are fruitful
to apply to understanding the first international step in a firm’s international development. Oviatt and McDougall (1995) point out that a global vision existing
Andersson et al. z International Activities in Small Firms
15
from a firm’s inception is probably the most important characteristic found in
entrepreneurs in born globals. This is also connected with the entrepreneurs’ level
of ambition and general motivation. However, it is firm age and CEO age (younger
CEOs) that are main predictors for becoming an internationally committed
company. These results are in line with the growing literature treating the born
global phenomenon, indicating that while firm experience is an important factor
in international activities, there may be a younger generation of CEOs who do not
see the national border as a limit that acts as the decisive factor for an international
growth strategy. Thus, the study indicates the importance of complementing
firm-level and industry-level studies with the study of individual decision-makers
to understand small firms’ internationalization processes (Andersson, 2000;
Andersson & Wictor, 2003; Andersson et al., 2001; Oviatt & McDougall, 1995, 1997;
Westhead et al., 2001). A promising avenue for future research could be to focus
on the individual hehind the strategic decision to go abroad, instead of the firm,
as the unit of analysis.
Although there are some limitations, this study makes important contributions
to both entrepreneurship and internationalization literature. The paper shows that
the factors influencing small firms to go abroad and become international differ
from factors that make them continue to grow their international activities once
they are in the international marketplace. The main influential models in the area
of firm internationalization (e.g., Johanson & Vahlne, 1977, 1990) have focused
on the importance of the same factors in all stages of the firms’ international
development. By focusing on different types of internationalized firms (e.g.,
differentiated by stage in the firms’ international development), more realistic
and specific analysis with insightful results can be carried through. As the trend
continues towards globalization and the integration of markets, a top priority for
entrepreneurship and small business scholars should be to further investigate how
small firms might successfully manage their international activities in a world
that is becoming smaller.
Finally, the results of this study have a few implications for policy-makers and
practitioners. By showing that there are different factors affecting the first step
in the firms’ international development and the continuing growth, practitioners
can target these different types of firms in different ways to improve international
growth. To assist firms that are not international, but have CEOs that perceive the
environment as dynamic and fast growing, should be a fruitful way to increase
the international development of small firms. If practitioners’ and policy-makers’
objective is to promote export growth in already internationalized companies, they
should try to introduce a dynamic combination with younger CEOs in older firms.
This result could be of importance for boards of directors in older firms aiming to
increase exports and international activities in already internationalized firm. The
hiring of a young internationally oriented and proactive CEO with international
experience could inject new inputs and ideas that would further increase the firm’s
international development.
Acknowledgement
The authors thank “Lars Erik Lundberg’s stiftelse för forskning och utveekling” and Halmstad
University for financial support.
16
Small Business Exporting: Adoption of Innovation
Notes
1. By an internationalized firm we mean one that derives a significant proportion of its
revenue from sales in foreign markets. In this paper we have chosen a cut point of 25%.
This break point has been used in many other studies, e.g., Knight (1997) and Madsen
et al. (1999). The argument is that 25% of turnover derived from international activities
outside the home market are strategic marketing activities that are significantly affecting
the firms’ performance.
2. We chose to replace these measures with their natural logs in order to achieve normality
and equality of variance in the dependent variables.
3. We cannot reject the null hypothesis that there is no difference between the observed
and model-predicted values of the dependent if the Hosmer and Lemeshow Goodnessof-Fit test statistic is non-significant (in this case greater than .05). This implies that the
estimates of the model fit the data at an acceptable level.
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