SMEs and
Internationalization:
The Perceived
Usefulness of Export
Promotion Programs in
The Netherlands
Master Thesis
Florien Anne Labree (10001854)
June 23, 2017 – Final Version
MSc Business Administration
International Management Track
University of Amsterdam
First Supervisor: E. Dirksen MSc
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Statement of Originality
This document is written by Florien Labree who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
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Acknowledgments
I would like to take this opportunity to express my sincere appreciation to Erik Dirksen, Rhodante Ahlers and Yiling Zhang for their guidance, patience and encouragement throughout the period of this thesis. Also, I would like to thank all interviewees who made this research possible. Finally, I would like to dedicate this thesis to my parents, thank you for your unconditional love and support.
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Abstract
SMEs appear to be underrepresented in the global economy relative to their contribution to local and national economies, due to internal and external barriers that hinder them from competing in the international market. In response, almost all governments have provided export promotion programs to help SMEs overcome these barriers. This study aims to investigate the perceived usefulness of export promotion programs by the managers of internationalized SMEs in The Netherlands. A qualitative research design employing a multiple case study approach has been adopted to investigate ten internationalized SMEs from The Netherlands using semi-structured interviews. The findings suggest that the perceived usefulness of export promotion programs — the degree to which a manager believes that using export promotion programs enhances the export performance of SMEs — is limited.
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Table of Contents Statement of Originality ... 2 Acknowledgments ... 3 Abstract ... 4 Table of Contents ... 5 List of Tables ... 7 1. Introduction ... 8 2. Literature Review ... 9 2.1.1 Definition of SMEs ... 9 2.1.2 Internationalization of SMEs ... 9
2.1.3 Motivation to SME Internationalization ... 11
2.1.4 Barriers to SME Internationalization ... 14
2.2.1 Export Promotion Programs ... 15
2.2.2 Research on Export Promotion Programs... 16
2.2.3 The Perceived Usefulness of Export Promotion Programs ... 16
2.2.4 Working Propositions ... 17
2.3.1 SMEs in The Netherlands ... 18
2.3.2 Export Promotion Programs in The Netherlands ... 19
3. Methods ... 20
3.1 Research Design ... 20
3.2. Case Selection ... 20
3.3 Data Collection ... 21
3.4 Data Analysis ... 22
4. Data Analysis and Results ... 23
4.1 International Experience ... 23
4.2 Internationalization Barriers ... 24
4.3 Utilization ... 25
4.4 Financial Support ... 29
4.5 Trade Policy ... 29
4.6 Results Working Propositions ... 30
5. Discussion and Conclusion ... 31
5.1 Theoretical Implications ... 31
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5.3 Limitations ... 32
5.4 Future Research ... 32
5.5 Conclusion ... 32
References ... 33
Appendix I: Interview Guide ... 38
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List of Tables
Table 1. Motives for Internationalization 12
Table 2. Classification of Export Barriers 14
Table 3. Overview of the Selected Cases 21
Table 4. Prior International Work Experience of Managers 23
Table 5. Internationalization Motives of SMEs 24
Table 6. Internationalization Barriers of SMEs 25
Table 7. Export Promotion Programs Utilized by SMEs 27
Table 8. Manager Perception of the Support Received 28
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1. Introduction
Small and medium-sized enterprises (SMEs) are considered the backbone of an economy. They are essential for economic growth, job creation, innovation and social inclusion. According to the Organisation for Economic Co-operation and Development (OECD), SMEs account for over 95% of firms and 60-70% of employment, generating a large share of new jobs in OECD economies (OECD, 2007). Nevertheless, SMEs appear to be underrepresented in the global economy relative to their contribution to local and national economies, due to internal and external barriers that hinder them from competing in the international market. In response, almost all governments have provided export promotion programs to help SMEs overcome these barriers (OECD, 2008).
In the last twenty years, export promotion programs have increased in number and weight in government budgets. This development, however, has not been followed by an equal amount of research in this field (Freixanet, 2012). In the period between 1992 and 2011, only seven of the studies on export promotion programs focused specifically on SMEs. Moreover, more than half of the studies on export promotion programs have been carried out in the United States and Canada (De Holanda Schmidt & Ferreira da Silva, 2015). While the concept and role of export promotion programs is similar across countries, organizational set-up and strategic approaches differ
considerably. Consequently, cross-country generalizations of successful export promotion programs may not be equally applicable in all countries (Seringhaus & Botschen, 1991). To date, few studies have reported findings on export promotion programs in a Dutch context. Therefore, the research question of this thesis is: What is the perceived usefulness of export promotion programs by the managers of internationalized SMEs in The Netherlands? An increased understanding between firms and public policy makers will assist in matching programs to specific needs, which could positively contribute to export growth in The Netherlands (Sraha, 2015).
A qualitative research design employing a multiple case study approach has been adopted to investigate ten internationalized SMEs from The Netherlands using semi-structured interviews. The thesis has been organized as follows. The following chapter presents a literature review that discusses the motives and barriers for SME internationalization. Next, export promotion programs are elaborated on. The methodology is discussed in Chapter 3, while the results are presented and discussed in Chapter 4. This thesis concludes by discussing the key findings. The implications, limitations, and recommendations for research are also presented.
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2. Literature Review
This chapter reviews the literature relevant to this study. The chapter is divided into three sections. Section one examines the internationalization process of SMEs and focuses on internationalization theories, motives and barriers. Section two discusses the literature concerning export promotion programs provided by governments and its impact on the internationalization process of SMEs. Section three introduces SMEs and export promotion programs in The Netherlands.
2.1.1 Definition of SMEs
There is no standard definition of what constitutes an SME. Countries and international organizations set their own guidelines for defining an SME, often based on the number of employees, sales or assets (Mulenga, 2016). This thesis has adopted the definition of the European Union (2003): “The category of micro, small and medium-sized enterprises is made up of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding 50 million euro, and/or an annual balance sheet total not exceeding 43 million euro”.
It is widely accepted that SMEs have different characteristics than larger firms (Jennings & Beaver, 1997). These differences can be summarized in three main features: (1) SMEs have limited internal resources, (2) SMEs are managed in an entrepreneurial style, and (3) SMEs usually have a small influence on the market environment (Levy & Powell, 1998).
2.1.2 Internationalization of SMEs
Internationalization is a concept that has been researched intensively over the last few decades and from a variety of viewpoints (Ruzzier et al., 2006). In light of these diverse viewpoints, a universally accepted definition of the concept remains elusive (Glaum & Osterle, 2007). However, in general, internationalization tends to be defined as “a synonym for the geographical expansion of economic activities over a national country’s border” (Ruzzier et al., 2006, p.477).
A distinction can be made between inward and outward internationalization (Korhonen et al., 1996). Inward internationalization includes the following modes of activities: (1) importing, (2) acting as licensee from a foreign company, (3) establishing joint ventures inside the home country with foreign companies, and (4) managing as the wholly owned subsidiary of a foreign firm. Outward internationalization refers to the following modes of activities: (1) exporting, (2) acting as licensor to a foreign company, (3) establishing joint ventures outside the home country with foreign companies, and (4) establishing or acquiring wholly owned businesses outside the home country (Beamish,
10 2003). This study focuses on the outward internationalization process of SMEs, and exporting in particular. Exporting is traditionally the most popular way to enter international markets, mainly because it requires minimal resources, involves lower risks, and allows for greater structural and strategic flexibility (Czinkota & Ronkainen, 2007).
Firms have engaged in international trade and cross-border activities for centuries. However, an accelerating globalization has created a new business environment, driving internationalization of not only large, but to a greater extent, also smaller firms (Gjellerup, 2000). It is widely acknowledged that the globalization of firms has been spurred, foremost, by the growth of low-cost technology, reduced trade barriers and the opening up of formerly closed markets (Axinn & Matthyssens, 2002).
The internationalization process of SMEs has primarily been studied through three theoretical perspectives: the behavioral perspective, the network perspective and, more recently, the entrepreneurial perspective (Coviello & McAuley, 1999; Oviatt & McDougall, 1994).
The behavioral perspective covers internationalization process (stage) models. These models have their theoretical base in the behavioral theory of the firm (Cyert & March, 1963) and the growth theory of the firm (Penrose, 1959). The first and most influential internationalization process model is the Uppsala model (Johanson & Weidersheim-Paul, 1975; Johanson & Vahlne, 1977). The Uppsala model sees internationalization as a process in which the firm gradually increases its international involvement. According to the Uppsala model, firms start their international operations in markets with low psychic distance, i.e., markets with a similar culture, language, political system, and others, using low resource commitment modes such as exporting or licensing. As firms gain more market knowledge and international experience, they expand to more physically distant markets and move to higher resource commitment modes.
The network perspective draws on social exchange and resource dependency theories (Axelsson & Easton, 1992). It defines internationalization as the process of developing business relationship networks in other countries. The network perspective assumes that firms are dependent on resources controlled by other firms. Firms gain access to these critical external resources through their network positions. In these networks, firms have a common interest in developing and maintaining relationships with each other in a manner that provides them mutual benefits. Internationalization takes place when a firm starts to develop relationships with another firm that belongs to a network abroad. Relationships between firms in various countries act as a bridge to new markets (Johanson & Vahlne, 1990).
The entrepreneurial perspective, also known as international entrepreneurship theory, is based on recent research on smaller, rapidly internationalizing firms that did not follow the
11 traditionally suggested stages of internationalization. These firms are called Born Globals, Global Start-Ups, or International New Ventures. Such firms discover and exploit opportunities in multiple countries from their inception, and do not follow a sequential path of international expansion (Melen & Nordman, 2009). Such internationalization behavior is most prevalent among firms that target small, highly specialized niche markets and operate in small, open economies (Bell, McNaughton, & Young, 2001). The economic and technological changes taking place in many markets around the world, in conjunction with global-minded entrepreneurs, have pushed these firms to operate internationally soon after their inception. The entrepreneurial perspective regards the entrepreneur to be the main driver of value creation and internationalization of a firm.
2.1.3 Motivation to SME Internationalization
SMEs internationalize for a variety of reasons. The classical discussion of internationalization motives can be traced back to the work of Dunning (1993), who distinguished four different internationalization motives: market seeking, resource seeking, efficiency seeking and strategic resource seeking.
Market seeking: Firms that venture abroad to find customers (Dunning, 1993).
Resource seeking: Firms that venture abroad to obtain resources that are not available at home or available at a higher cost (Dunning, 1993).
Efficiency seeking: Firms that venture abroad to lower their costs of performing economic activities or aim at rationalizing their already existing operations in various locations (Dunning, 1993).
Strategic resource seeking: Firms that venture abroad to acquire strategic assets, which may be crucial in their long-term strategy, but that are not accessible at home (Dunning, 1993).
Meanwhile, other scholars provide aggressive and defensive motives, which are labeled as proactive and reactive motives of internationalization (Wattanasupachoke, 2002). Proactive motives represent stimuli to attempt strategy changes based on a firm’s interest in exploiting unique competences or market possibilities. Reactive motives indicate that a firm responds to pressures or threats in its domestic market or in foreign markets and adjusts passively to them by changing its activities over
12 time (Czinkota & Ronkainen, 2013). Table 1 provides an overview of the main proactive and reactive internationalization motives.
Table 1. Motives for Internationalization
Proactive Motives Reactive Motives
Profit and growth goals Competitive pressures
Managerial urge Domestic market: small and saturated
Technology competence/unique product Overproduction/excess capacity Foreign market opportunities/market
information Unsolicited foreign orders
Economies of scale Extend sales of seasonal products
Tax benefits Proximity to international
customers/psychological distance
Source: Hollensen (2007)
Proactive Motives
Profit and growth goals: Profitability is the strongest motivator for an SME to internationalize. Managers may feel that international sales will result in higher profit margins or more added-on profits (Czinkota, 2004).
Managerial urge: Managerial urge reflects the desire, drive and enthusiasm of managers towards internationalization. In SMEs, internationalization decisions are often the province of a single decision maker. Therefore, managerial urge plays a major role in determining the international activities of SMEs (Albaum & Duerr, 2008).
Technology competence and unique product: Firms may have a technological advancement or unique product not available to other international competitors. Such advantages should result in major business success abroad, and are therefore a motivation for SMEs to internationalize (Lamb et al., 2012).
Foreign market opportunities and market information: Foreign market opportunities only act as a motive for internationalization if the firm possesses or is capable of securing the required resources to respond to these opportunities. Firms are likely to first explore foreign market opportunities perceived as having some similarity with the opportunities in their domestic market (Hollensen, 2008). Exclusive market information is another proactive motive for internationalization. This includes knowledge about foreign customers, marketplaces, or market situations that are not widely known by other firms (Czinkota, 2004).
13 Economies of scale: Economies of scale are the cost advantages that arise with increased output of a product. Internationalization may enable a firm to increase its output (Hollensen, 2008).
Tax benefits: Many countries offer tax concessions to their firms in order to stimulate internationalization. This allows firms to either acquire a higher profit or to offer their products at a lower cost in foreign markets (Hollensen, 2008).
Reactive Motives
Competitive pressures: A prime form of reactive motivation is reaction to competitive pressures. Firms fear losing domestic market share to competing firms that have benefited from the effect of economies of scale gained by internationalization. They may also fear losing foreign markets permanently to domestic competitors that decide to focus on these markets, knowing that market share is most easily retained by the firm that obtains it initially (Hollensen, 2008).
Domestic market – small and saturated: If the domestic market is small or saturated and prevents firms from attaining economies of scale and scope, firms may be pushed into internationalization (Hollensen, 2008).
Overproduction and excess capacity: Excess capacity, like overproduction, can also be a powerful motive. If equipment for production is not fully utilized, firms may see expansion into the international market as an ideal possibility for achieving a broader distribution of fixed costs (Czinkota, 2004).
Unsolicited foreign orders: Many SMEs have become aware of opportunities in foreign markets because their products and services have generated enquires from overseas (Hollensen, 2008).
Extending sale of seasonal products: Seasonality in demand conditions may be different in the domestic market than in international markets. This can act as a reason for foreign market exploration that may result in a more stable demand throughout the year (Hollensen, 2008).
Proximity to international customers and psychological distance: Physical and psychological closeness to the international market can often play a major role in the international activities of a firm (Hollensen, 2008).
14 2.1.4 Barriers to SME Internationalization
Despite the trends facilitating internationalization, many barriers still exist. Barriers are defined as “constraints that hinder the firm’s ability to initiate, to develop, or to sustain business operations in overseas markets” (Leonidou, 1995, p. 281). Table 2 provides an overview of the main export barriers. They are differentiated into internal and external barriers. Internal barriers are associated with organizational resources and capabilities and a firm’s approach to internationalization, while external barriers consist of all barriers that derive from the home and host environment within which the firm operates. Leonidou (2004) has identified internal barriers as informational, functional, and marketing barriers, while external barriers have been separated into procedural, governmental, task, and environmental barriers. The degree to which these barriers affect internationalization behavior depends on the characteristics of firms, their management, and the environmental background.
Table 2. Classification of Export Barriers
Internal Barriers
Informational Limited information to locate/analyze markets
Problematic international market data Identifying foreign business opportunities Inability to contact overseas customers
Functional Lack of managerial time to deal with exports
Inadequate/untrained personnel for exporting Lack of excess production capacity for exports Shortage of working capital to finance exports
Marketing Product Developing new products for foreign markets
Adapting export product design/style
Meeting export product quality standard/specifications Meeting export packaging/labeling requirements Offering technical/after-sales service
Price Offering satisfactory prices to customers Difficulty in matching competitors’ prices Granting credit facilities to foreign customers Distribution Complexity of foreign distribution channels
Accessing export distribution channels Obtaining reliable foreign representation Logistics Unavailability of warehousing facilities abroad
Excessive transportation/insurance costs Promotion Adjusting export promotional activities
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External Barriers
Procedural Unfamiliar exporting procedures/paperwork
Problematic communication with overseas customers Slow collection of payments from abroad
Governmental Lack of home government assistance/incentives
Unfavorable home rules and regulations
Task Different foreign customer habits/attitudes
Keen competition in overseas markets
Environmental Economic Poor/deteriorating economic conditions abroad
Foreign currency exchange risks Political-Legal Political instability in foreign markets
Strict foreign rules and regulations High tariff and nontariff barriers Social-Cultural Unfamiliar foreign business practices
Different socio-cultural traits
Verbal/nonverbal language differences
Source: Leonidou (2004)
A study by the OECD (2009) has demonstrated that the top-ranked internationalization barriers of SMEs are (1) the shortage of working capital to finance exports, (2) identifying foreign business opportunities, (3) limited information to locate or analyze markets, (4) inability to contact potential overseas customers, and (5) the lack of managerial time, skills, and knowledge.
2.2.1 Export Promotion Programs
In light of the identified barriers to internationalization, governments have provided export promotion programs to help firms, and especially SMEs, to overcome these obstacles. Export promotion programs refer to “all public policy measures that actually or potentially enhance exporting activity either from a firm, industry, or national perspective” (Seringhaus, 1986, p.55). Governments take an active role in promoting exports, as exports provide “the means to increase employment opportunities for local people, generate foreign exchange to finance imports, enrich public funds with additional tax revenues, create backward and forward linkages in the economy, and achieve higher economic growth and living standards” (Leonidou, et al., 2011, p. 2).
In the literature, several types of export promotion programs provided by governments can be found. They can be distinguished into informational programs and operational programs. Informational programs include newsletters, export-marketing seminars, export market information, and market research on foreign markets. Operational programs include provisions of contacts, regulatory assistance, trade missions, financial support, export logistics training, and foreign buyer visits (Seringhaus & Rosson, 1991; Diamantopoulos et al., 1993).
16 2.2.2 Research on Export Promotion Programs
Export promotion programs have attracted research attention since the 1960s, but the research has often been criticized as being too fragmented, uncoordinated, and unsystematic to yield concrete insights. Previous research has approached export promotion programs from two general perspectives: the government and the firm. From the government's perspective, studies have focused on program formulation mechanisms, structure, delivery channels, and program effectiveness. From the firm's perspective, studies can be classified into five major groups. The first group deals with the awareness, usage, and usefulness of export promotion programs by non-exporters, non-exporters, or both. The second set of studies focuses on segmenting firms that are receiving export promotion programs according to the stage they have reached in their internationalization process. The third group of studies highlight the link between export promotion programs and factors that stimulate or hinder the firm’s efforts to initiate and develop export operations. The fourth stream of studies reveal that export promotion programs are influential in enhancing organizational and/or managerial competence in export activities. The fifth and more recent studies investigate the effect of export promotion programs on the firm’s export performance or through intervening effects of other factors (Leonidou et al., 2011).
The conclusions of these studies are mixed: some of them find that export promotion programs have a positive impact, while others do not. Certain research has stated that export promotion programs play an important part in helping firms overcome internationalization barriers (Czinkota & Ricks, 1981; Seringhaus & Mayer, 1988), enable the knowledge acquisition related to export decision making (Brooks & Rosson, 1982; Lee & Brasch, 1978) and enable locating sales in a shorter period of time (Seringhaus, 1986). However, other studies have determined that there is a discrepancy between firm needs and government assistance priorities, based on managers’ perceptions (Seringhaus & Rosson, 1990), that there is no clear connection between export promotion programs and export performance (Gronhaug & Lorentzen, 1983) and that firms have little awareness of export promotion programs as a whole and do not use them (Chhokar & Kedia, 1986).
2.2.3 The Perceived Usefulness of Export Promotion Programs
As indicated in the previous paragraph, the perceived usefulness of export promotion programs has often been evaluated, as it is vital for governments to assess the awareness, utilization, and
17 usefulness of export promotion programs, in order to justify the appropriation of tax revenues to provide these programs – mostly free of charge – to the business sector (Kharzragui, 2011).
Albaum (1983) reviewed the level of awareness and usage of government assistance amongst a sample of 86 exporters and 43 non-exporters in the United States. The export promotion programs were generally unfavorably viewed.
Chhokar and Kedia (1986) evaluated seventeen export promotion programs with respect to their familiarity, use, and benefits on the part of 49 exporters and 47 non-exporters in the United States. A large number of firms surveyed indicated a willingness to utilize the programs and expected to derive considerable benefits from such utilization.
Seringhaus and Botschen (1991) studied the use and usefulness of export promotion programs in Canada and Austria. A survey of stratified samples of 271 exporters in Canada 312 exporters in Austria showed that firms desire more tailored support.
Ifju and Bush (1994) analyzed data from 354 small hardwood lumber companies in the United States to determine the awareness, use, and the perceived benefit of export promotion programs. Export promotion programs that guarantee payment by foreign buyers, provide credit information on foreign buyers, and transfer funds from foreign buyers were considered to be very beneficial.
Kumcu, Harcar and Harcar (1995) evaluated the awareness and managerial perception of the adequacy of export promotion programs among 277 non-exporting firms in Turkey. The managements of the non-exporting firms considered export incentives inadequate.
Köksal (2009) investigated the awareness, utilization, and usefulness of export promotion programs among 211 manufacturing companies in Turkey. All export promotion programs were considered useful.
2.2.4 Working Propositions
As shown, the different studies have resulted in mixed opinions concerning the perceived usefulness of export promotion programs. Moreover, few studies have reported findings on export promotion programs in a Dutch context. Therefore, as mentioned in the introduction, this study will investigate the perceived usefulness of export promotion programs by the managers of internationalized SMEs in The Netherlands.
Perceived usefulness is defined as “the degree to which a person believes that using a particular system would enhance his or her job performance” (Davis, 1989, p.320). In this study, perceived usefulness refers to the degree to which a manager believes that using export promotion
18 programs enhances the export performance of SMEs. The importance of perceived usefulness has been widely recognized. However, even though the perceived usefulness of export promotion programs provides valuable information, it cannot be considered an impact study. Managers may give high ratings to programs that have no influence on the export performance of their SME (Francis & Collins-Dodd, 2004).
In order to help answer the research question, two working propositions were drawn from the literature. Working proposition 1 is: Export promotion programs help Dutch internationalized SMEs overcome internationalization barriers. Working proposition 2 reads: Export promotion programs that provide financial support to Dutch internationalized SMEs are considered the most beneficial.
2.3.1 SMEs in The Netherlands
More than 99% of Dutch firms are SMEs. In the third quarter of 2015, the Netherlands counted nearly one and a half million firms with fewer than 250 employees. The vast majority of these SMEs consist of one-man businesses. Dutch SMEs account for 70% of private sector employment and contribute 61% of GDP in the Netherlands (CBS, 2015). Therefore, SMEs can rightly be called the backbone of the Dutch economy.
A growing number of Dutch SMEs operate internationally. In 2010, there were 105,000 exporting SMEs. In the period 2010–13, this number rose to 118,000 exporting SMEs (CBS, 2015). Nevertheless, most SMEs tend to produce mainly for the home market. It is assumed that stimulating these SMEs to become more involved in exports can be a means of strengthening the economic base of individual SMEs. By exploiting the export potential of SMEs, the Dutch share in the world export market can increase as well (Piëst & Ritsema, 1990). Dutch SMEs, especially in the business services sector, have considerable export potential (EIM, 2009). This is also reflected in a study by ABN AMRO (2012). It examined the theoretical export potential of SMEs in the following four sectors: industry, wholesale, transport & communications, and business services. The findings show that €46 billion in export potential remains untapped in these sectors. In the business services and transport & communications sectors, the greatest additional export can be gained in terms of percentage, namely, 52% and 54%, respectively. In industry, a sector that has traditionally focused on exports, this percentage is lower: 18%. The strengthening of export promotion programs is therefore of interest. This includes an increasing of awareness of international business opportunities and the availability of government support for (potentially) internationally active companies.
19 2.3.2 Export Promotion Programs in The Netherlands
In the Netherlands, the main government body involved in export promotion is the Netherlands Enterprise Agency (RVO), which is part of the Ministry of Economic Affairs. The RVO encourages entrepreneurs in sustainable, agrarian, innovative and international business. It helps with grants, finding business partners, know-how and compliance with laws and regulations. Its aim is to improve opportunities for entrepreneurs and strengthen their position. The RVO works closely with embassies, consulates and trade offices abroad (RVO, 2014).
In 2014, the RVO provided 50.000 firms with periodic advice and information on international business, organized 17 economic missions – trade missions led by a government official – accompanied by 599 firms, signed 26 partnerships in Partners for International Business programs, and performed 368 market scans. Also, Holland Branding contributed to the 12th place of The
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3. Methods
This chapter addresses the methods used in this study. It is organized into four sections that describe the research design, case selection, data collection and data analysis.
3.1 Research Design
As stated in the introduction, the aim of this study is to investigate managers’ perception of the usefulness of export promotion programs within Dutch internationalized SMEs. A qualitative research methodology was chosen, since the study is concerned with exploring an aspect of export promotion programs that has limited existing research, and which touches on activities and outcomes that are difficult to quantify statistically. Qualitative research is useful when a study is conducted to determine the motivations, perceptions or beliefs of a certain phenomenon (Van der Velde et al., 2004).
Case study research is the most used qualitative research method in business research (Eisenhardt, 1989). Case study research is defined as “the in-depth study of instances of a phenomenon in its natural context and from the perspectives of the participants involved in the phenomenon” (Gall et al., 2003, p.619). Researchers can adopt either a single case or a multiple case study design. In this study, a multiple case study was conducted, as the perceived usefulness of export promotion programs by the managers of internationalized SMEs in The Netherlands can only be understood through comparisons across a number of cases. By comparing multiple cases, it is possible to draw more valid and reliable conclusions (Yin, 2009).
3.2. Case Selection
The cases for this study were selected using purposive sampling methods, which provide “information-rich cases for study in depth” (Patton, 1980, p.169). As Merriam (1988, p.48) notes, “purposive sampling is based on the assumption that one wants to discover, understand and gain insight, therefore one needs to select a sample from which one can learn more.” The case selection was purposive on the basis of five criteria: (1) the SMEs were Dutch; (2) the SMEs were internationalized; (3) the SMEs received government assistance in their internationalization process; (4) the managers had a key role in the internationalization process of the SME; and (5) the SMEs were reasonably different in order to obtain rich and diverse perspectives. Applying the criteria, ten
21 SMEs were selected, as it is recommended that four to ten cases be studied (Eisenhardt, 1989). An overview of the selected cases are found in Table 3.
Table 3. Overview of the Selected Cases
Code Respondent Established Industry Employees Internationalization
SME #1 Managing
Director 1906 Aquaculture 37 Europe, Hong Kong
SME #2 Technical
Sales Director
1981 Automotive 42 Europe, China
SME #3 Quality
Manager 1983 Construction 80 Europe, North America, South America, Southeast Asia
SME #4 Export
Manager 1991 Machinery 50 Europe, North America, South America, Southeast Asia, Australia
SME #5 Managing
Director 2000 Retail 5 Europe, Asia, the Middle East
SME #6 Managing
Director 2007 Energy 4 Europe
SME #7 Managing
Director 2008 Retail 9 Europe, Southeast Asia, the Middle East, South Africa
SME #8 Managing
Director 2010 Machinery 5 Europe
SME #9 Managing
Director 2012 Retail 8 Europe, North America, Southeast Asia, the Middle East
SME #10 Commercial
Director 2013 IT 4 Europe
3.3 Data Collection
This study is mainly based on primary data collected through ten interviews with managers from the selected SMEs. The interviews were semi-structured and in-depth in nature and were conducted using an interview guide. The interview guide consisted of three main parts: (1) basic information on the SME and respondent; (2) the internationalization process and internationalization barriers; and (3) the utilization of export promotion programs and its perceived usefulness. The interview guide can be found in Appendix I. Semi-structured and in-depth interviews are very helpful to “find out what is happening and to seek new insights” (Saunders et al., 2012, p.320). The interviews were held face-to-face at the premises of the SMEs in May and June 2016. All interviews were conducted in Dutch and lasted between 40 and 75 minutes. Each interview was recorded and transcribed, in order to control bias and produce reliable data for the analysis (Saunders et al., 2012). All recordings were
22 made with the respondent’s consent. The case studies have been presented anonymously in this report.
3.4 Data Analysis
In this study, both deductive and inductive thematic analysis were used to identify patterns in the managers’ responses that provide an answer to the research question. In deductive thematic analysis, predetermined themes are used to analyze the data. In order to test the working propositions, two themes were pre-selected: internationalization barriers and financial support. However, the use of predetermined themes can bias and limit the interpretation of the data. Therefore, also inductive thematic analysis has been conducted. In inductive thematic analysis, the themes emerge from the data and are not pre-constructed by the researcher. Inductive thematic analysis involves six phases: (1) familiarization with data, (2) generation of initial codes, (3) searching for themes among codes, (4) reviewing themes, (5) defining and naming themes, (6) and producing the report (Braun & Clarke, 2006). The inductive thematic analysis produced three themes: international experience, utilization and trade policy. Thus, in this study, the following five themes emerged from the data analysis: (1) international experience, (2) internationalization barriers, (3) utilization, (4) financial support, and (5) trade policy.
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4. Data Analysis and Results
This chapter outlines the data analysis and results of the study.
4.1 International Experience
The interviews reveal that all managers have extensive prior international work experience, as shown in Table 4, and possess a positive attitude towards internationalization, as shown in Table 5. Motivational export promotion programs to raise awareness of export opportunities are therefore of little interest to these managers. They are already highly motivated to extend their international presence and very much aware of the benefits internationalization brings. In the words of Hollensen, these managers possess a strong managerial urge to internationalization, illustrated by the manager of SME #7: “I wanted to establish a firm that operates internationally”.
As a result of their extensive prior international work experience, all managers obtained knowledge on international markets and business networks, reducing the need for the utilization of export promotion programs. This applies in particular for SME #2, SME #8 and SME #10, as these firms operate in the same industry as the former employer of their manager.
Table 4. Prior International Work Experience of Managers
Code Respondent Prior International Work Experience
SME #1 Managing Director 2 years
SME #2 Technical Sales Director 17 years
SME #3 Quality Manager 0 years
SME #4 Export Manager 16 years
SME #5 Managing Director 26 years
SME #6 Managing Director 11 years
SME #7 Managing Director 16 years
SME #8 Managing Director 2 years
SME #9 Managing Director 38 years
24 Table 5. Internationalization Motives of SMEs
Code Internationalization Motives Type
SME #1 “The market prices in The Netherlands are too low” Reactive
SME #2 “We focus on city buses. There is only one bus manufacturer in The
Netherlands. We had to spread our wings.” Proactive and Reactive
SME #3 “Our founder is very internationally oriented.” Proactive
SME #4 “Demand in foreign markets (…) The Dutch market is saturated.” Proactive and
Reactive
SME #5 “There is not enough money to make in the Dutch market (…) We like to
work in an international environment.” Proactive and Reactive
SME #6 “We take our technology to the biomass, which is outside The
Netherlands.” Proactive and Reactive
SME #7 “I wanted to establish a firm that operates internationally (…)
Internationalization maximizes outputs and minimizes costs (…) Gardens are laid out in the spring and fall. In order to achieve a more stable demand over the year, I directed our market orientation towards the southern hemisphere.”
Proactive and Reactive
SME #8 “The Dutch market is too limited.” Reactive
SME #9 “It was a simple calculation. In order to make a profit, the company had
to go global. Economies of scale.” Reactive
SME #10 “Our first client was a company we worked with at a former employer’s.
They happened to be from Norway.” Reactive
4.2 Internationalization Barriers
The interviews show that SMEs face a variety of internationalization barriers, both internal and external to the firm, as portrayed in Table 6. As stated in the literature review, export promotion programs exist to assist firms in their bid to overcome internationalization barriers and to create and improve their exporting position in the global marketplace. However, the interviews reveal that most internationalization barriers cannot be addressed by export promotion programs. For example, SME #2 operates in a highly competitive market and sells an expensive product that requires long-term commitment between seller and buyer. It noticed that foreign buyers prefer to purchase the product from multinationals, as these buyers are uncertain whether a small firm like SME #2 will still be in business in a couple of years. Export promotion programs are not designed to respond to internationalization barriers such as these. They cannot establish well-developed worldwide cold chain logistics, in the case of SME #1, increase oil prices, in the case of SME #6, or change the perception of products in foreign markets, in the case of SME #7.Furthermore, managers do not expect governments to address such internationalization barriers in their export promotion programs. They find other means to overcome these internationalization barriers. SME #2, for example, decided to partner with a German multinational in order to reassure foreign buyers.
25 Nevertheless, even though the managers acknowledge that export promotion programs cannot and should not address all types of internationalization barriers, this still reduces the managers’ perception of the usefulness of export promotion programs, since the most important internationalization barriers are overcome through other means. Therefore, the managers perceive the impact of export promotion programs as minimal.
Table 6. Internationalization Barriers of SMEs
Code Internationalization Barriers Type
SME #1 “In order to export, a costly health certificate from the NVWA is required
(...) Our products require cold chain logistics. In some countries, cold chain logistics are not well developed.”
Internal
SME #2 “Foreign customers prefer purchasing from larger firms (...) Language
barriers, particularly in Poland (...) Lots of competition (...) Local presence is needed in order to obtain contracts.”
Internal and External
SME #3 “Protectionism (...) Legal and fiscal barriers (...) Local presence is needed
in the United States (...) Economic crisis in Spain.” External
SME #4 “Our success is highly dependent on the success of our distributors
around the world (...) High import duties, particularly in Argentina and Brazil (...) Nobody in the firm speaks Hindi.”
Internal and External
SME #5 “It is difficult to find suitable business contacts (…) Doing business in
France is hard.” Internal
SME #6 “Low oil prices (...) Success of the firm is heavily dependent on
government regulations.” External
SME #7 “Cheaper competitors (...) Promotional activities have to be adjusted,
particularly in Japan (...) The products are considered unnecessary, especially in Eastern Europe.”
Internal and External
SME #8 “The use of our product is not required by law (…) We do not want to
work with distributors.” Internal and External
SME #9 “Not knowing where to go and whom to contact (...) I do not have the
money to setup warehouse facilities abroad.” Internal
SME #10 “It is difficult to find suitable customers.” Internal
4.3 Utilization
The interviews portray that the SMEs have used a variety of export promotion programs, as shown in Table 7, with the number of export promotion programs utilized varying significantly among them. SME #2, SME #5, SME #6 and SME #8 have received the most government assistance. These firms are quite different in terms of age, size, and industry. Nevertheless, they possess a common denominator: their sales could be positively influenced by stricter government regulations regarding sustainability or safety. Therefore, the managers of SME #2, SME #5, SME #6 and SME #8 maintain regular contact with policymakers in order to influence the policymaking process. Due to this regular
26 contact with policymakers, it appears that these managers are more aware of the export promotion programs offered by the government, and can therefore make better use of them.
The SMEs in this study have mainly used export promotion programs to find potential foreign customers or business partners, as can be seen in Table 7, with the most popular being business partner scans and trade missions provided by diplomatic missions abroad. The managers are both positive and negative about the support received, as can be seen in Table 8. The managers especially identified problems with export promotion programs in two areas: (1) quality, and (2) specificity.
As can be seen in Table 7, all SMEs contacted diplomatic missions abroad in their internationalization process. All managers indicated that the difference in quality among diplomatic missions is important. For example, SME #2 states: “We saw possibilities in China and contacted the Dutch diplomatic mission in China. They executed a market scan for us. The market looked very promising. Consequently, the diplomatic staff introduced us to the right people and within a month we had a stand on two trade fairs in China. The diplomatic staff was very motivated and the contact very personal. We tried the same approach in India, but we never received a market scan.” SME #5 goes one step further: “Almost all diplomatic missions are disappointing and the market scans they provide are of bad quality. The diplomatic staff does not understand what entrepreneurs are doing and do not show enough commitment. Exports could grow significantly if the quality of the diplomatic missions would improve.”
As stated in the literature review, the RVO organizes trade missions. The main reason for organizing these trade missions is for companies to meet potential business partners. However, the SMEs explained that the scope of these trade missions is often too broad, or too focused on multinationals. They therefore do not perceive them as a useful way to meet potential business partners. According to SME #2, trade missions from industry associations are much more appealing: “You are assured you will talk to people from the right level.” However, this does not mean that trade missions are useless. SME #6, SME #7, and SME #8 have used trade missions to give cachet to contract signing. Moreover, according to SME #10—active in software development—“the RVO reasons that a firm wants to conquer the German, Spanish or Italian market. If you want to sell consumer goods, that is the case. However, software is a niche. Then you are looking for a European strategy. They have no answer to that.”
27 Table 7. Export Promotion Programs Utilized by SMEs
Code Government Assistance
SME #1 “We went on a trade mission to Singapore and Hong Kong (…) A Dutch official held a
speech for us at the season’s opening in Hong Kong (…) The RVO helped us to obtain certain documents.”
SME #2 “The Dutch Embassy in China conducted a market scan for us (…) We participate in a
Partners for International Business program: The Coast to Coast E-Mobility Connection (…) We have been on trade missions.”
SME #3 “The RVO has brought us in contact with its network in different countries.”
SME #4 “We use the RVO mainly for data (…) We take part in Holland Pavilions at trade fairs.”
SME #5 “Several diplomatic missions conducted market scans for us (…)We take part in Holland
Pavilions at trade fairs (…) We have been on a trade mission to Chile.”
SME #6 “We have been on trade missions (…) We have received a subsidy from the RVO to
conduct a feasibility study in the Ukraine.”
SME #7 “The Dutch Ambassador to the Czech Republic held a speech at the opening of our plant
in the Czech Republic (…)The Dutch Embassy in South Africa has helped us find suitable production partners and bring our product to the attention of the national government.”
SME #8 “The RVO has brought us in contact with its network in different countries (…) The RVO
has helped us with practical matters, such as the appropriate customs forms.”
SME #9 “Before I launched my firm, I went on trade missions to the United States, Dubai and
Hong Kong to assess the response to my product and the potential of the market.”
SME #10 "The RVO pointed out interesting networks, such as the Netherlands Water Partnership,
and gave us legal and fiscal advice (...) The Dutch Embassy in Norway provided us with information on invoicing.”
28 Table 8. Manager Perception of the Support Received
Code Usefulness Improvements
SME #1 “We gained valuable contacts (…) “The
official gave cachet to our opening.” “There should be more Holland Branding. The Netherlands is not well known in Hong Kong.”
SME #2 “We are very happy that we are members
of Coast to Coast, as it is sector specific (…)Trade missions can give cachet to deals (…)The Dutch Embassy in China really helped us with its market scan.”
“Trade missions are too broad (…) The quality of the diplomatic missions varies greatly. In India, we never received the market scan we requested.”
SME #3 “We gained valuable contacts.” “The government often cannot answer our
questions about laws and regulations (…) They should focus on developing more tax agreements.”
SME #4 “The country reports of the RVO are very
helpful (…) We meet potential customers and distributor at trade fairs. Holland Pavilions are well organized (…) Holland Branding pays off. The Netherlands has a good reputation.”
“The government should be more
pragmatic. Embassies act too cumbrously (…) There should be more free trade agreements.”
SME #5 “It helps enormously if a Dutch official
comes with you to an appointment with a potential client.”
“The diplomatic missions and the market scans they provide are of bad quality. They should hire entrepreneurs.” (…) There are ever fewer Holland Pavilions .”
SME #6 “On a trade mission in Brazil, we signed a
memorandum of understanding with a client. The presence of high officials gave it extra cachet (...) The subsidy was very useful. We decided not to do business in the Ukraine.”
“Trade missions do not provide you with new contacts (…) Embassies have no specific contacts."
SME #7 “The speech has yielded a lot of
publicity.” “I am not aware of most of the services the Dutch government provides (…) The image of the Dutch government among
entrepreneurs is bad.”
SME #8 “Their name generates leads.” “The RVO has the image that it is only
committed to large companies (…) Too little use is made of its services.”
SME #9 “I was able to assess the response to my
product and the potential of the markets (…) I learned how business is done in the respective countries (…) The Consulate-General in Dubai stayed in contact and regularly asks whether they can do something for me.”
“Trade missions are designed for large firms. SMEs have other needs.”
SME #10 “Embassies are valuable. They can
properly assess potential partners and prepare valuable country reports.”
“The RVO should think more about the added value of the services it offers (…) Nowadays, it is about conquering entire continents, not countries. The RVO has no answer to that.”
29 4.4 Financial Support
As discussed in the literature review, the shortage of working capital to finance exports is argued to be the most important internationalization barrier for SMEs. For this reason, the Dutch government offers financial support to SMEs, enabling them to do business at an international level. However, this study paints a very different picture. The interviews demonstrate that only SME #9 has addressed a lack of capital as an internationalization barrier, as can be seen in Table 6, and only SME #6 made use of financial support from the government, as can be seen in Table 7. SME #6 received a subsidy from the RVO to conduct market research in the Ukraine. The RVO covered half of the research costs. The manager of SME #6 is very fond of this type of subsidy: “I love to make use of this instrument. It is very practical. It allows you to focus on your own business.” Nevertheless, he also points out a potential danger of subsidies: “Too much subsidy makes people lazy. You should be a little short on money. Then you stay creative.”
The other managers possess a more negative outlook on the financial support offered by the government. The manager of SME #7 indicates: “Subsidy applications are complicated and time-consuming. I do not have the time for that.” The manager of SME #10 agrees: “If you make a cost-benefit analysis, subsidies are almost never interesting. The entire procedure could easily take up a week’s work, which is not compensated by the small sum of money you could possibly receive.” SME #4 points out that: “If you have a good idea for a project abroad, banks are willing to help you out. Therefore, if you need a subsidy to start a project, the risk must be very high. Then you should not do the project at all.” These concerns are mainly practical in nature. The manager of SME #1 also stated moral objections: “The government should be careful with handing out subsidies. It is not a bank.” Moreover, the manager of SME #1 feels: “The use of subsidies sends the wrong message to customers. It shows you are unable to do it alone.” In short, the managers generally do not utilize export promotion programs for financial support.
4.5 Trade Policy
The Dutch government has a large impact on the competitiveness of Dutch SMEs in the international context. A distinction can be made between so-called generic and specific policies. Generic polices are aimed at creating a favorable economic climate for exporting firms. They seek to improve the international competitiveness of the Dutch economy and are directed towards the removal of international trade barriers. Specific polices are concerned with providing information and financial support for individual firms. With regard to specific policies, export promotion by the Dutch
30 government is seen as a set of services in the fields of research, information, intermediation, and cooperation, with the objective of encouraging Dutch exports and services abroad.
The interview data reveals that the managers attach more value to generic trade policies than to specific export promotion programs, as trade policies have a larger impact on the competitiveness of SMEs and the government is the only institution that can execute them, while the services offered by the export promotion programs could often be achieved through other means such as banks or private export promotion programs. For example, SME #1 feels that: ”The government should remove trade barriers. For the rest you have to do it yourself.” SME #3 and SME #4 agree: “The government should focus on the closing of tax deals and trade agreements.”
4.6 Results Working Propositions
The results of the tested working propositions can be found in Table 9.
Table 9. Results Working Propositions
Working Proposition Results
Export promotion programs help Dutch internationalized SMEs overcome internationalization barriers
Partially supported
Export promotion programs that provide financial support to Dutch internationalized SMEs are considered the most beneficial
31
5. Discussion and Conclusion
This chapter discusses the theoretical and practical implications of this study. The limitations of this study are considered and suggestions for further research are presented.
5.1 Theoretical Implications
Working proposition 1 – export promotion programs help Dutch internationalized SMEs overcome internationalization barriers – is partially supported. In line with the literature, the managers indicate that export promotion programs can be helpful to gather information and contacts. Moreover, the managers point out that the presence of Dutch government officials during foreign business meetings can enhance the trustworthiness of the SME as potential business partner. However, the managers also indicate that export promotion programs are not able to address most internationalization barriers and that they attach more value to generic trade policies than to specific export promotion programs. Export promotion programs play not an important part in helping Dutch internationalized SMEs overcome internationalization barriers.
Working proposition 2 – export promotion programs that provide financial support to Dutch internationalized SMEs are considered the most beneficial – is not supported. Contrary to the literature and the OECD (2009) argument that shortage of working capital to finance exports limits SMEs internationally, this study shows that the inability to contact potential overseas customers is the main barrier for SMEs. Consequently, export promotion programs are generally not utilized by managers for financial support.
Additionally, this study also demonstrates that motivational export promotion programs are of little interest to managers with extensive prior international work experience and that the use of export promotion programs is higher in SMEs that are aware of the services. This is consistent with earlier studies (Chhokar & Kedia, 1986; Moini, 1998).
5.2 Practical Implications
This study aims to attain a better understanding of the perceived usefulness of export promotion programs in order to increase the understanding between firms and public policy makers. Table 8 in Chapter 4 gives an overview of a number of improvements provided by the managers which could be adopted by Dutch policy makers, mainly regarding the quality and specificity of the export promotion programs. The managers have expressed that the quality of the export promotion
32 programs disappoints. Officials should think more like entrepreneurs and act more commercially. The managers indicated that they would be willing to pay for these enhanced services.
However, this raises the following question: Which export support programs should be provided by the government and which export support programs should be provided by the private sector? The government should not take over the responsibility of the private sector, and should focus instead on activities that the market cannot deliver.
5.3 Limitations
The sample used in this study was taken from a single country. This has important implications on the generalizability of this study. The results of this study therefore only hold for The Netherlands, and only for the internationalization of Dutch SMEs. Another limitation is the relatively small sample on which the findings are based.
5.4 Future Research
It would be of interest to have more studies in this area. First, it would be noteworthy to repeat the current study with a quantitative research design that incorporates a larger sample of SMEs. This would enable scholars to establish if the findings are consistent or if they depend on the methodology and sample chosen. Second, another study of this nature could focus on SMEs with managers that have no prior international work experience. One of the objectives could be to discover what is the perceived usefulness of export promotion programs of these managers, when compared to the managers with prior international work experience.
5.5 Conclusion
This study investigated the perceived usefulness of export promotion programs by the managers of internationalized SMEs in The Netherlands. A qualitative research design employing a multiple case study approach has been adopted to investigate ten internationalized SMEs from The Netherlands using semi-structured interviews. The findings suggest that the perceived usefulness of export promotion programs — the degree to which a manager believes that using export promotion programs enhances the export performance of SMEs — is limited.
33
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