Internationalization from sme perspective with reference

INTERNATIONAL JOURNAL OF ADVANCED RESEARCH
International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324 (Print),
ISSN 0976 – 6332 (Online), Volume 3, Issue 2, July-December (2012)
IN MANAGEMENT (IJARM)
ISSN 0976 - 6324 (Print)
ISSN 0976 - 6332 (Online) IJARM
Volume 3, Issue 2, July-December (2012), pp. 01-10
© IAEME: www.iaeme.com/ijarm.html ©IAEME
Journal Impact Factor (2012): 2.8021 (Calculated by GISI)
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INTERNATIONALIZATION FROM SME PERSPECTIVE WITH
REFERENCE TO PUMP AND MOTOR MANUFACTURING INDUSTRY
OF COIMBATORE DISTRICT

Ms.G.JAYANTHI
RESEARCH SCHOLAR,
KARUNYA UNIVERSITY
KARUNYA SCHOOL OF MANAGEMENT
COIMBATORE, TAMIL NADU
Email Id :jayanthiboopal@hotmail.com

Dr.R.AMUDHA
Associate Professor,
KARUNYA UNIVERSITY
KARUNYA SCHOOL OF MANAGEMENT
COIMBATORE, TAMIL NADU
Email Id: amudha@karunya.edu

ABSTRACT

In the era of global business, Internationalization of firm has been a critical factor for companies
and paid attention to small and medium sized enterprises(SMEs). In this article we examine the
internationalization process of SMEs. From the earlier studies it is evident that the
manufacturing firms follow the Uppsala model of Internationalization by starting the
company to operate in domestic market and slowly advancing to other countries. According
to Uppsala model of Internationalization slow and incremental base of Internationalization
process will reduce the risk factor and increased commitment will lead to an increased
investments in global operations. Another issue that we are dealing with, is, experience from
early inward internationalization activities can influence on outward international activities in
small and medium sized firms.
The presented empirical findings are based on the 143 small and medium sized pump and motor
manufacturing firms the researchers had through mail surveys and in- depth interviews. The

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results show that, initial export markets are closely associated with cultural and Geographical
factors. The initial mode of Operation tend to be Direct exporting. Important factors when
internationalizing seem to be the increased commitments and increased investments and also
the other variables such as management’s interest in international activities, previous
international experience etc.

Key words : Entrepreneurship, Internationalization, SMEs

I. Introduction
Internationalization is a phenomenon researched intensively over the last few decades from a
variety of viewpoints including organizational theory, marketing, strategic management,
international management and small business management. Issues such as international
decision making and management, the development of international activities and factors
favoring internationalization have been studied for both large as well as small businesses. The
focus of this study is on small and medium enterprises (SMEs) and their strategic
internationalization and export behaviour. Given the nature of today’s market place, SMEs are
increasingly facing similar international problems as those of larger firms.
II. Background of the study
Coimbatore is a multi sectoral cluster having a large number of pumps & motors manufacturing
units and light engineering enterprises, in addition to the large number of foundries. Since local
pumps and motor industry is one of the main customers for local foundries, one would expect
stronger linkages across the supply chain resulting in increased vertical cooperation. The demand
in the domestic market is so huge that the industries have never really explored the possibility of
exports of this product due to which the Indian pumps & motors industry was not very conscious
about modernization and up gradation and was quite satisfied with its ‘casual’ approach.
Globalization, which has opened the doors of India to multinationals, coupled with growing
concerns of pollution control, water and waste –water treatment, and demand for energy –
efficient systems is changing the scenario of the Industry.
III. Profile of the Industry : The Pumps & Motor cluster
The motor & pumps cluster in Coimbatore accounts for around Rs 2000 crores i.e. 40% to 50%
of the value produced in the country. Out of the total export of 400 Crores from Coimbatore the
pumps & motors export is approximately Rs.30 crore. The pumps & motor units are spread
across the rural, urban parts of the district and scattered all over the city. The average investment
in plant & machinery of pumps & motors units is between. Rs.15- 25 lakhs/unit. Agriculture
sector consumes about 35% of the total power generated in running the electrically operated
pump sets. Most farmers use inefficient non ISI marked pump sets which consume more
electricity and deliver less output. There is a potential of about 25% to 35% improvement in
the efficiency of these pump sets by affecting minor/major rectification and shifting to ISI
marked pumps
IV. Objectives
1. The main objective of this study is to know the motives of Internationalization and the
role of firm’s management in International activities
2. To analyse the role of foreign sales and the mode of operations in foreign countries.
3. To find out the importance of the triggering factors to operate internationally by the
exporting firms

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V. Internationalization theories
The most traditional way of describing the process of Internationalization is by the U model or
the Uppsala Internationalization model ( Johanson&Vahlne 1977) The U model contains
different steps that describe the firm’s level of Internationalization. In the beginning the firm
has no regular exports and initiates its internationalization process by direct exporting to a
foreign country. The basic assumptions of the model is that one cycle of events constitutes the
input of the next. The stage model has been criticized in different respects for being too
deterministic not emphasizing on the social networks in the business. The ‘Network’ approach
of Internationalization is most often applied on vertical relationships, between sellers and
buyers. Social networks have been pointed out as extremely important for entrepreneurs.
According to Zahra and George (2002), the term “International Entrepreneurship” first appeared
in the article by Morrow in 1988. Morrow (1988) suggested that advancements in technology,
declining cultural barriers and increasing cultural awareness has opened once-remote foreign
markets to all kinds of companies; small firms, new ventures as well as established companies.
Soon after that, McDougall’s (1989) empirical study comparing domestic and international new
ventures paved the way for academic study in international entrepreneurship (McDougall
&Oviatt, 2005, p. 537).
International entrepreneurship theory argues that“ individual and firm entrepreneurial behaviour
is the basis of foreign market entry” (Mtigwe, 2006, p. 16). A modification of McDougall and
Oviatt’s (1994) definition of entrepreneurship is given by Stevenson and Jarillo (1990, p. 23), for
them entrepreneurship is “a courageous managerial value creation process through which an
individual engages innovative, proactive, calculated risk-taking behaviour designed to prosecute
foreign business opportunities”. According to IET theory, the key to internationalization
nowadays is the entrepreneur. He is the one that possesses the skills and enough information to
measure the opportunities in the market with ability to create and make stable relationships with
other firms, suppliers, customers, government and media
VI. Data Collection & Research
The research was carried out during Feb- June 2012. The target group was Pump and motor
manufacturing companies of Coimbatore District with less than 500 employees. The
companies were mostly within manufacturing engineering products like Pumps and Motors.
The sample was drawn from a national database and all the firms within the selected
business areas were chosen.A structured questionnaire was used to collect the data from the
respondents. The questionnaire was answered by Export managers, Marketing Managers or
by the Owner founder of the Companies. The average number of Employees was 60 and the
average turnover was about Rs.4 to Rs.40 crores. The turnover gained from the foreign
business activities was in an average of 25% to 50 % which was answered by 58
respondents out of 143 sample size. i.e, 41% of the respondents belong to this category.
VII. Empirical Findings
There are many possible driving forces behind a firm’s internationalization pattern. These
factors are generally divided into two categories: proactive and reactive motivating factors. The
former group consists of management’s perceived benefits or opportunities. For instance,
increased revenues or profits may motivate the firm to enter the international arena. The
second group, i.e., the reactive motivators, refers to a set of motivators caused by the firm’s
response to environmental changes. For instance, overproduction, declining domestic sales,
excess capacity and saturated domestic markets may cause the firm to explore new global
markets.

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7.1 Motives of Internationalization
There are two factors that influence SMEs internationalization: proactive and reactive. From
Table 1,127 companies( 88.8%) have opted international operations through proactive motives
and only 16 companies have opted the reactive motives for entry into international markets.
Table 1- Motives of Internationalization

S.No Motives of Internatioanlization Frequency Percent
1 Pro activeness 127 88.8
2 Re activeness 16 11.2
Total 143 100.0
Table 2 – Reactive Motives

S.No Reactive motives of internationalization Frequency Valid Percent
1 Over Production 2 12.5
2 Declining Domestic Sales 0 0
3 Excess capacity of production 10 62.5
4 Saturated domestic markets. 4 25.0
Total 16 100.0

From Table 2, it is observed that none of the company has quoted that decline in domestic sales
is the reactive motive for internationalization. But Pump and Motor manufacturing companies
are having good domestic market and the ethnocentricity or the strong home market makes
the selected Industry for their motive of Internationalization. 127 companies have
internationalized through the Entrepreneur’s pro activeness in entering international markets.

7.2 Reasons for Internationalization
The Proactive and Reactive motives shape the SMEs’ reasons to go international.
Table 3 -Reasons for Internationalization

S.No. Reasons for Internationalization Frequency Valid Percent
1 Increase in Profits 44 31
2 Lower demand in domestic markets 2 1.4
3 Owner’s interest in going to international markets 46 32.1
4 Market expansion 22 15.3
5 Product characteristics 12 8.4
6 Organizational Goals 17 11.8
Total 143 100
Table 3, suggests that most of the SMEs analysed, enter international markets because of
market opportunity , expansion and profit. 44 Companies have chosen ‘Increase in profits’, 46
opted ‘Owner’s interest’ in going to international markets and 22 have suggested ‘market
expansion’ are the main reasons for international activities.Product characteristics are also the
reason for exploring new markets since many companies manufacture their products with
International standards supported with R & D facility.Lower demand in domestic market was
not selected by respondents since the selected units are having a strong home market base.

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Table 4- Operation Mode in International outward activities
S.No Mode of Operations Frequency Percent
1 Direct export to end customer 79 55.2
2 Direct export & through Foreign agent 42 29.3
3 Domestic agent 2 1.4
4 Importer/ reseller( distributor) 2 1.4
5 Direct Export & through Sales Office 12 8.4
6 Joint Venture 2 1.4
7 Others 4 2.8
Total 143 100.0
The operation modes, given in Table 4, used initially for foreign sales were mostly direct
export to the end customer, secondly selling through an importer or a reseller and thirdly
through a foreign agent. From the above table it is clearly stated, that direct export to the end
customer is by far the most popular operation mode. Secondly we have foreign agent and
other modes are through importer or reseller, having a sales office and also two companies
are having joint venture with the foreign countries, other 4 companies are foreign
companies having their own subsidiaries in Coimbatore. Knowledge about foreign markets is
gained when using direct export to the end customer. When using importers or foreign agents
the knowledge about the end customer and the market is low. As it can be concluded, that
when companies started to export to the other countries Direct Export mode is the most
popular one.
7.3 The Initial Entry Into Foreign Markets
The most important in the beginning is the importing countries such as, Indian subcontinents
and Middle east. 70 firms are exporting to Indian subcontinents which include Malaysia,
Singapore, Australia, UAE, Burma, Srilanka, Taiwan, Turkey, Europe, Dubai, Japan, USA, UK,
Africa, East middle Africa, South Africa Caribbean and SAARC Countries. Much impact on
the company’s decision to start operating internationally was the management’s interest in
Internationalization, foreign enquiries about the products or services and the motive of profit
maximization and business diversification. Table 5, shows 40.6% have 26-50% of export sales
and only 22.4% have above 50% of share in foreign sales.
Table 5 -Share of Foreign Sales in the Market.

Share of Foreign sales Frequency Percent
1 Below 25 % 53 37.1
2 26-50% 58 40.6
3 above 50% 32 22.4
Total 143 100.0

Table 6 - Characterization of the company according to the Foreign Sales.

Characterization of the Company Frequency Percent
1 Occasional 30 21.0
2 quite regular 79 55.2
3 Highly regular and continuous 34 23.8
Total 143 100.0

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ARM),
ISSN 0976 – 6332 (Online), Volume 3, Issue 2 July-December (2012)
olume 2,

In the above table 6, out of 143 companies 79 companies are the quite regular
companies, ite
exporters and 23.8% of the respondents are highly regular and continuous exporters.
Table 7 Speediness of Internationalization
7-
S.No Speediness of Internationalizations Frequency Percent
1 upto 5 years 26 18
2 6-15 years 70 49
3 above 15 years
ove 43 30
4 Foreign Companies 4 3
Total 143 100.0

Table 7, shows that, out of the 143 companies, 26 companies have taken hardly 5 years
f
to export their consignments to foreign countries which shows the speediness of
speed
Internationalization. 70 companies have taken 6 15 years for Internationalization
ion. 6-15
process which is considered as medium speediness. And 43 companies have taken
more than 15 years for their Internationalization process which is a very slow and
sluggish in Internationalizing. Four companies have included in the study which are
.
foreign companies previously internationalized and having their own subsidiaries in
India.
Table 8 - Average No. of export countries
S.No No. of Countries Companies Percent
1 1 0 0
2 2-
-4 13 9.1
3 5-
-9 75 52.4
4 above 10 55 38.5
Total 143 100.0

Fig. 1 – Number of Countries Exported by companies
2-4 5-9 above 10
9%
39%

52%

From the above table 8 and Fig. the total number of countries in which the companies
Fig.1,
conducted foreign sales can be seen around 52% are exporting to 5-9 countries and
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around 39% are exporting to more than 10 countries.

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Table 9 - Number of Buyers in the domestic Market and abroad
S. no No. of buyers count Home market Foreign market Total
1 1-4 109 - 34 143
2 6-10 69 - 74 143
3 11-15 93 26 24 143
4 16-20 120 10 13 143
5 21-25 137 6 - 143
6 26-30 109 26 8 143
7 >30 69 58 16 143
(Count is a column where the data is not entered for the particular factor)
As visualized in table 9, the companies most often had over 30 customers in the home market
is 58 and 16 firms are having more than 30 customers outside the country. Of the 143
companies 126 companies are having good domestic market. Hence the home market still
seems to be of great importance for the companies in general. 74 companies are having export
market of 6-10 countries and 16 companies are having good export market of selling products
to more than 30 countries.

7.4 Management’s Role Of International Experience

The role played by the Entrepreneur or Management is crucial in the rapidness of
internationalising. Several factors influence in taking decisions for entering foreign markets.

Table 10- Management’s Role in Internationalization Process
Factors No one One of company Many
Count % Count % Count %
has lived abroad 13 9.09 106 74.13 24 16.78
has studied abroad 64 44.76 69 48.25 10 6.99
has worked in another company in international assignments 120 83.92 19 13.29 4 2.80
has worked in a foreign company having lot of international
121 84.62 11 7.69 11 7.69
experience
travel abroad once or twice a year 19 13.29 49 34.27 75 52.45
managed a company in abroad for current company 128 89.51 9 6.29 6 4.20
firm has foreign directors 118 82.52 25 17.48
other experiences 21 14.69 4 2.80 118 82.52

From the above table10, it is observed that, 106 companies answered at least one of the
person had lived abroad and 69 answered one of them had studied in foreign country
and 75 answered that they travel abroad at least once or twice a year. Thus it shows that
the management does not have much international exposure enabling to operate in
foreign countries. On the other hand, one can assume that only one or a few need to
have international experience in a company before entering international business.

7.5 Major Variables in the Internationalisation Process:
The main idea behind this study, was to check out which variable from each
Internationalization theories still fit into the SME internationalization process. The

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purpose was to understand which of the variable played the most influential role in the
process and in what degree of Importance, although some variables can be applicable
to more than one theory.
Table 11 - Major Variables in the Internationalisation Process
Mean Rank*
Variable ID Main variables in Internationalization process Mean SD
C2_1 Business network and relationship 4.59 0.663 6.84
C2_2 Entrepreneurial activity 4.41 0.763 5.78
C2_3 Resources of the company 4.32 0.623 5.17
C2_4 Skills of the employees to operate internationally 4.55 0.553 6.45
C2_5 Innovative behavior of firms 4.02 1.024 4.90
C2_6 Standardization, Centralizations & marketing 4.73 0.506 7.24
C2_7 Managers of the firm to have previous international experience 4.59 0.799 6.84
C2_8 Experience from early inward international activities 4.41 0.799 5.93
C2_9 Entrepreneur’s motivation 4.15 0.695 4.55
C2_10 Entrepreneur’s risk taking ability 4.27 0.605 4.95
C2_11 increased commitment will lead to increased investments. 4.73 0.605 7.37
(* Mean Rank extremely minor impact=4 and extremely major impact = 7)

From Table 11, it is deduced that, Increased commitments will lead to increased
investments and vice versa is the most important variable to consider as Uppsala
theory suggests. Next ranking is the standardization and centralization and marketing
as the important activities . Followed by, Business network and the Entrepreneur’s
previous international experience will make the SME successful the in
internationalization process.
Table 12 - Factors that affect the company’s Decision in Internationalisation
Variable Triggering Factors
Mean SD Mean Rank *
ID
E3_1 Internationalization of customers 4.38 0.794 8.53
E3_2 Internationalization of competitors 4.14 0.946 7.45
E3_3 Success of competitors in foreign markets 4.28 0.826 7.83
E3_4 Management’s interest in internationalization 4.58 0.782 9.76
E3_5 Management’s experience in internationalization 4.62 0.794 10.08
E3_6 Competitive foreign sub contractors 3.76 1.027 5.62
E3_7 Inadequate demand in the foreign market 3.66 1.100 5.59
E3_8 Increasing competition in domestic market 4.22 0.873 7.59
E3_9 Foreign enquiry about the company’s products / services 4.25 0.960 8.09
E3_10 Lack of sub contractors in the home market 3.61 1.205 5.76
E3_11 Market Entry Barriers 4.31 1.084 8.41
E3_12 The company never considered its home market is the only market. 3.99 1.219 7.29
E3_13 Export subsidies / subsidies for international operations from chamber of commerce/ 4.10 0.808 6.73
other support organization.
E3_14 Lack of experiential knowle.dge in export markets 4.73 0.731 10.60
E3_15 Lack of export commitment & the focus on Domestic Market. 4.76 0.660 10.68
(*Mean Rank extremely minor impact=5 and extremely major impact = 10)

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From the above table 12, it is well understood that, the factors No.15 & 14 are having
the major impact to operate internationally among the selected SME is Lack of
Export commitment and the focus is fully given on Domestic market. The next
triggering factor is the management’s experience in internationalization is also
noticeably important. The owner or the Entrepreneur should have some international
experience to operate internationally. Third is the management’s interest in
internationalization also makes the company operate internationally.

VIII. FINDINGS AND CONCLUSIONS

From the empirical findings we can conclude that the company or the management has to take
interest in internationalizing their SME. The study indicates that the initial export markets
chosen by the company are closely situated both culturally and geographically. Most of the
companies are exporting their products to Indian Subcontinents and well established companies
are exporting their products to other major countries. A direct Export mode is preferred by the
vast majority of the SMEs., because it is rather inexpensive operational mode that does not
require any substantial commitments. In addition, based on the study, the important factors in
internationalizing seem to be the management’s interest in international activities as well as
gaining knowledge about foreign markets as important factors. More studies are needed in
order to discover the nature and extent of connection between import and export activities. For
example, empirical information covering both qualitative and quantitative data from case
studies and in-depth interviews would shed more light on this complex relationship and its
underlying structure. Both in-depth and in –process research methods are needed to ponder into
the problems in internationalising.

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Issue 2, pp 85-99
7. MitjaRuzzier,Robert d Hisrich, BostjanAntoncic, SME Internationalization research:

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past, present and future, Journal of small business and enterprise development, Vol 13,
No.4, 2006 pp 476-492
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Black well publishers.

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