Internationalization of SME’s from Emerging
Markets: The Internationalization Model of Indian and Pakistan
Manufacturing Companies
M. IMRAN SAFI S2638940
imran.safi@student.rug.nl
Master’s Thesis MSc. International Business and Management
University of Groningen Faculty of Economics and Business
31 December 2016
Word count (excluding abstract, references and appendix): 14,969 Supervisor: P.J. (Paulo) Marques Morgado
ABSTRACT
The role of SMEs is crucial in the GDP of developed and developing economies. Emerging markets such as India and Pakistan, adopted market reforms in the 1990s, opened its economy to the world which brought fierce competition and made it easier for domestic and foreign firms to cross the borders. Most of the research during last two decades focused on developed economies SME's internationalization, while giving tiny attention to emerging markets SMEs. Therefore, a qualitative study conducted which explores emerging markets (Indian and Pakistani) manufacturing SMEs international entry modes by addressing the question: How do Indian and Pakistani Manufacturing
Small and Medium enterprises design their international entry mode? The study also
compare the characteristics of internationalization models prevalent in advanced countries (Uppsala model, Networking theory, International new venture model, OLI model, and Latecomers perspectives) with the emerging market SMEs
internationalization models hence addressed the sub-question: What are the similarities
and differences of Indian and Pakistani SMEs internationalization models with the models prevalent in developed countries? Fifteen SMEs (Indian and Pakistan)
interviewed and Atlas.ti applied to analyze the primary data. Findings show that emerging market SMEs utilize existing established national and international networks extensively as a facilitator to export to intended foreign destinations regardless of any distance. Existing national and international networks facilitate emerging market SMEs to target a niche market in multiple foreign markets with price quality competitive products by exporting from emerging market rather than production in foreign markets. Emerging market SMEs adopt inward internationalization and internationalization via following national clients in foreign markets via export from emerging market. Emerging market SMEs doesn’t follow any of the prevailing internationalization models in full version but combining and modifying some of the characteristics of advanced countries models.
INTRODUCTION ... 7
LITERATURE REVIEW ... 10
Uppsala model ... 13
Network’s Approach ... 14
Born-Global ... 15
Ownership, Location, and Internationalization (OLI) Approach: An Eclectic Paradigm... 16
Latecomers Perspective ... 17
Existing Literature Based Model ... 18
Figure 1: Model ... 19 METHODOLOGY ... 20 Research Design ... 20 Sample Selection... 21 Data Collection ... 21 Applied Approach ... 22
Analysis of interviews using Atlas.ti ... 22
Analysis ... 24
Thorough Analysis of Whole Sample ... 24
Rapid Entry in Multiple Foreign Markets... 26
International Entry Mode by Inward Internationalization ... 28
Entry Mode via Following Domestic Firms in International Market ... 29
Entry Mode by FDI ... 30
Analysis by Industries ... 31
International Entry Mode of EM Auto Manufacturing SMEs ... 31
International Entry Mode of Agricultural SMEs ... 32
Analysis by Age of EM SMEs ... 32
International Entry Mode of EM SMEs Internationalized Before the Year 2000 .. 33
International Entry Mode of EM SMEs Internationalized After the Year 2000 .... 33
Analysis by origin of SMEs ... 33
Approach to Internationalization ... 34
Speed of Internationalization ... 35
Domestic Market... 36
Psychic Distance ... 37
Reason to Internationalize ... 37
Foreign Market Advantages and Vision ... 38
Suggestions by EM SMEs Experts ... 38
Table 1: Summary of the Analyses to Question 1 ... 41
Table 2: Summary of the Analyses to Question 2- Sub-question ... 42
Table 3: Detailed Comparison of Internationalization Models ... 43
DISCUSSION... 46 CONCLUSION ... 50 Novelty... 53 Limitations ... 53 Future Research ... 54 References ... 55
Table 1: INTERVIEW MODUS OPERANDI ... 63
Table 2: Comparison of Existing Internationalization Models ... 66
Table 3: Research Timeline ... 69
Table 4: Interviewed SMEs Characteristics ... 69
Figure 1: Network View of Whole Sample ... 74
Figure 2: International Strategy ... 75
... 75
Figure 3: Rapid Entry in Multiple Foreign Markets ... 76
Figure 4: Inward Internationalization ... 76
Figure 5: Entry Mode via Following Domestic Clients in International Market ... 77
Figure 6: FDI Entry Mode ... 77
Figure 7: EM Auto SMEs ... 78
Figure 8: EM Agricultural SMEs ... 78
Figure 9: EM Construction SMEs ... 79
Figure 10: Entry Mode of EM SMEs Internationalized Before the Year 2000 ... 79
Figure 11: Entry Mode of EM SMEs Internationalized After the Year 2000 ... 80
Figure 12: Indian SMEs... 80
Figure 13: Pakistani SMEs ... 81
Figure 14: Approach to Internationalization ... 81
Figure 15: Speed of Internationalization ... 82
Figure 16: Domestic Market ... 82
Figure 17: Psychic Distance ... 83
Figure 18: Reason to Internationalize... 83
Figure 19A: Foreign Market Advantages ... 84
Figure 19B: Foreign Market Vision ... 84
Figure 20: Suggestions by Industry Experts ... 85
... 85
Report 1: Business Strategy... 86
Report 2: Approach to Internationalization ... 99
Report 3: Speed of Internationalization ... 103
Report 5: Psychic Distance ... 111
Report 6: Reason to Internationalize ... 114
Report 7: Market Advantage ... 117
Report 8: Vision of Foreign Market ... 121
INTRODUCTION
The trend towards internationalization of business endeavors initially emerged as the focus of research in the field of international business literature 60 years ago (Zapletalová, 2015). International trade developed into the global market. In the 1960s, cross-border business was $102 b, while today it has reached to $14 t (Cavusgil, Knight, Riesenberger, Rammal, & Rose, 2014). A couple of decades ago only large enterprises considered players in international business. Recent advancements, however, have enabled all kinds of
businesses small, medium and large enterprises in advanced, emerging and least developed countries to get benefit by participating in international business (Cavusgil et al., 2014). Moreover, SMEs considered the most important segment in developed and developing countries while the role of SMEs in manufacturing sector and international business in emerging markets is inevitable (Pradhan & Das, 2015).
total manufacturing SMEs engaged in international business in India. According to SMEDA (SMEDA, 2016), there are 2.96 m registered SMEs in Pakistan, which amounts to 90% of all firms in Pakistan. There are 0.58m Manufacturing SMEs, which means are 19.72% engaged in the manufacturing sector. They employ 80% of non-agriculture labor force and contribute 40% to Pakistan’s GDP (Malik, Iqbal, Shaukat, & Yong, 2010). Despite their importance in economies and international trade, the behavior of manufacturing SMEs internationalization in emerging markets has hardly been explored (Malik et al., 2010; Pradhan & Das, 2015).
India and Pakistan are emerging economies that adopted market reforms in the 1990s and opened their economies to the world. Manufacturing SMEs in such markets played an active role in international trade. Indian trade (import & export) has risen dramatically, at a rate of 17% to 20% in the period 2005 to 2010 (Oswal, Ruigrok, & Agrawal, 2014). Indian and Pakistani SMEs entered international markets in search of new opportunities due to fierce competition in domestic markets (Malik et al., 2010; Subrahmanya, 2014). It has not yet been explored on how EM manufacturing SMEs design their international entry modes and
whether they are similar to advanced countries SMEs in their internationalization approach. Therefore, this study explores emerging markets manufacturing SMEs’ international entry modes they adopt to reach international markets.
Since the 1960s, two wide-ranging theoretical streams have emerged. First, there are some models adopted by large organizations. The stage model which considers
internationalization as the chain of the establishment and the experience gained gradually is the key of the internationalization (Ashton & Keasey, 2005a). Eclectic theory or the OLI model finds three variables such as, Ownership, Location, and Internalization advantages denoted by “OLI” which encourage the firm to internationalize (Dunning, 2001). Second, Networks and Born Global, models of internationalization emerged in the 1990s. These two streams of theories emerged in developed economies and applied to firms in advanced economies only (Westhead, Wright, & Ucbasaran, 2001; Zapletalová, 2015). Thirdly, the ‘latecomer approach’ appeared in the newly developed countries applied by both MNEs and SMEs international entry mode. Therefore, this study compares developed economies internationalization models with emerging economies to explore the similarities and differences in their internationalization models.
2015). During the last two decades, the focus of research was on the internationalization process of developed countries firms. However, research on emerging markets “India and Pakistan” SMEs and their internationalization processes have been explored only to a limited extent (Autio, 2005; Phillips McDougall, Shane, & Oviatt, 1994). Emerging markets recently grabbed scholars’ consideration. Several research studies have paid attention to firm's
internationalization mainly directed on large-scale, grown up multinational enterprises. Emerging markets manufacturing SMEs internationalization got little attention (Bruton, Ahlstrom, & Obloj, 2008; Javalgi & Todd, 2011). Therefore, the research on emerging markets such as Indian and Pakistani SMEs and their internationalization process are
relatively scarce (Autio, 2005; Phillips McDougall et al., 1994). In this regard this study aims to discuss the entry modes of Indian and Pakistani manufacturing SMEs to address the following research question:
Question 1: How do Indian and Pakistani Manufacturing Small and Medium enterprises design their international entry mode?
Sub-question: What are the similarities and differences between emerging market (Indian and Pakistani) SMEs internationalization models and the models prevalent in developed countries?
This study contributes to mainstream internationalization theory. Researching emerging economies in the internationalization era will enrich existing internationalization literature. This is an inductive study exploring emerging markets’ SMEs’ internationalization models by interviewing fifteen manufacturing SMEs from India and Pakistan. Moreover, such study investigates to compare developed economies internationalization models with emerging economies. Such a comparison will expose whether emerging, and developed economies are similar, or there are differences in their internationalization models.
Since EM gave a momentum to international business, India and Pakistan emerging economies and promising markets for both inward and outward internationalization. India has played a vital role in international trade for the last two decades. Indian and Pakistani
LITERATURE REVIEW
Most of the developing countries adopted import substitution policies in the 1950s and onward, to stimulate the growth of their local manufacturing industries. Such policy of import substitution caused manufacturing industries in such markets to develop and produce for domestic markets (Humphrey, 2003). Moreover, manufacturing industries of developing economies evolved and production exceed than local consumptions a push to find new markets in foreign countries. There were self-sufficient countries like India, China, Latin America, and the ASIAN region, with limited imports and exports which brought market reforms to enhance trade.
In the 1990s, a transformation process in some emerging economies like India and Pakistan took place by two processes “New investment and Liberalization” to boost up their respective economies. Such transformation termed these countries as emerging market; their manufacturing industries played an active role in international business. Hence such policy of investment and liberalization in combination with huge potential market appealed various new competitors to enter such markets (Humphrey, 2003). International competitors brought intense competition backed by advanced technologies, managerial skills and international standards. (Franceschini et al., 2006), emphasized that this be a crucial time for EM manufacturing sectors to cope challenges of competition and globalization to meet
international standards and find ways to enter foreign markets to become prosper and gain competitive position (Franceschini et al., 2006). Like developed markets, EM manufacturing sector comprises of SMEs and large firms. EM SMEs are different from large organizations, EM SMEs more resource-constrained firms combine and utilize available cost effective sources and resources in domestic and foreign markets to develop their internationalization strategy (Subrahmanya, 2014).
that geographical extension, mainly international diversification caused evolution considered one of the most important expansion conduits for EM SMEs (Lu & Beamish, 2001).
According to (Oviatt & McDougall, 1999; Oviatt & McDougall, 1994), SMEs from emerging markets played a very active role in the process of internationalization and international market development. EM SMEs cross-border activities gave a new momentum to
international trade and the number of EM SMEs routing to internationalize their activities increasing rapidly (Ayyagari et al., 2011). Moreover, SMEs international entry is faster and cost-effective than large firms (Zapletalová, 2015). EM SMEs international market entry is the outcome of both push and pulls factors (Zapletalová, 2015). Push factors are intense competition in domestic markets while pull factors are opportunities exploitation in foreign markets (Zapletalová, 2015). The design and approach of EM SMEs international entry modes are subject to their limited resources in domestic and target foreign markets
(Andersson & Florén, 2011; Schweizer, 2012). Despite their importance and involvement in the cross-border operations, EM SMEs explored very limitedly (Malik et al., 2010;
Subrahmanya, 2014).
Luo & Tung (2007:482) defined EM international enterprises as “International
companies that originated from EM and engaged in outward FDI, where to exercise effective control and undertake value-adding activities in one or more foreign countries” (Luo & Tung, 2007). The outward FDI from emerging economies in 2010 touched 31.8% of total outward FDI (UNCTAD, 2012). According to IMF, World Economic Outlook (2013), shows that during last two decades emerging economies SMEs significantly enlarged their role in the global economy. Moreover, the outcome of pro-market reforms in EM is that half of the Global GDP (50.44%) in 2013 comes from such economies compared to 31% in 1980. Pattnaik & Kumar, argued that EM characterized by huge markets, lack of soft infrastructure such as economic, health, cultural & social standards in their institutional context as
compared to developed market economies while introduced market reforms to grab inward and outward FDI (Pattnaik & Kumar, 2014). Pattnaik and Kumar further added that EM competitiveness comprises of lower cost of factors of production such as labor, land, and factory but different from developed markets settings and facilities. Hence, SMEs in EM follow different internationalization approach (Pattnaik & Kumar, 2014).
million (69%) manufacturing SMEs active in international business (Pradhan & Das, 2015). According to SMEDA Pakistan (SMEDA, 2016), there are 2.96 million SMEs comprises approximately 90% of all firms in Pakistan. 0.58million SMEs (19.72%) engage in the manufacturing sector (Malik et al., 2010). Indian and Pakistani SMEs entered international markets in search of new opportunities a struggle of their internationalization approach (Malik et al., 2010; Subrahmanya, 2014). Manufacturing SMEs in emerging markets exhibit different international approach than advanced economies SMEs based on their locations, facilities, and resources, hence design different internationalization strategies (Subrahmanya, 2014).
Emerging countries (India and Pakistan) adopted market economies in the 1990s and opened its economies to the world. Indian trade (import & export) has risen dramatically, at a rate of 17% to 20% in the period 2005 to 2010 (Oswal et al., 2014). Indian and Pakistani SMEs in their internationalization struggle utilize existing limited resources in domestic and foreign markets to design international strategy as a mode of entry in foreign markets (Malik et al., 2010; Subrahmanya, 2014). Likewise, other emerging economies, India and Pakistan first track of internationalization helped firms enormously from inward internationalization at home by collaborating with global players via joint venture and original equipment
manufacturing (Luo & Tung, 2007). Inward internationalization transferred technological and organizational skills enabling EM MNEs and SMEs to embark on outward
internationalization later in some unconventional ways to both developing and developed countries (Luo & Tung, 2007). According to Subrahmanya, EM SMEs international entry modes guided by their access to cost effective resources in domestic and foreign markets, hence a systematic investigation can clarify their international voyage (Subrahmanya, 2014).
Moreover, the global market is the outcome of international trade and commerce that is during the 1960s - Cross-border business was near $102 billion per year, while today,
reaching to an amount $14 trillion annually (Cavusgil et al., 2014). (Muñoz-Bullón, Sánchez-Bueno, & Vos-Saz, 2015), defines internationalization of firm as the exploitation of
firm to internationalize (Dunning, 2001). Second, Networks and Born Global, models of internationalization emerged in the 1990s. These two streams of theories emerged in developed economies and applied to firms in advanced economies only (Westhead et al., 2001; Zapletalová, 2015). Thirdly, the ‘latecomer approach’ appeared in the newly developed countries applied by both MNEs and SMEs international entry mode. Therefore, this study further compares developed economies internationalization models with emerging economies to explore the similarities and differences in their internationalization models.
International entry models that firms adopt in their internationalization process have been the main focus of international management in the latest research work. This determines that internationalization models try to symbolize the practices of entrepreneurial subject matters whenever they start off their overseas operations (Zapletalová, 2015). However, the research on emerging market such as Indian and Pakistani SMEs and their
internationalization process are relatively scarce (Autio, 2005; Phillips McDougall et al., 1994).
Following are the mainstream internationalization models prevalent in advanced economies. This study explains each model in detail to compare with the models adopted by EM Manufacturing SMEs in their internationalization process to answer the second question. Discussing these models will help us to compare the similarities and differences with EM SMEs internationalization models.
Uppsala model
According to this model, internationalization considered to be both a sequential and linear process made up of complete stages in what is commonly known as the chain of the establishment (Kuivalainen et al., 2012). While analyzing internationalization as a slow and gradual process of learning, the Uppsala model places the experience gained gradually as the key of the internationalization (Ashton & Keasey, 2005b). The essential knowledge gathered from the interactions in foreign markets improves the firm’s decision-making. As a result, internationalization is more sensitive, reactive and opportunistic series about gradual
increments in the choices made (Wolff & Pett, 2006). According to (Li, Li, & Dalgic, 2004), there are four stages involved sequentially:
i- Irregular activities in dealing with exports.
iii- Coming up with subsidiaries upon sales.
iv- Engagement in production activities in the foreign country.
Stage model contribution influenced by the psychological distance (Ojala & Pasi Tyrväinen, 2009) and directly affects the decision-making in the international transactional activities. As the international experience and interactions rise, this psychological distance hinders SMEs from venturing into new foreign territories (Johanson & Vahlne, 2009). The result of this is a progression towards full exploitation of the available opportunities for the countries involved in the services.
Network’s Approach
Network approach makes use of theories, such as resources dependency and social exchange, and concentrates on the behavior of the firm in the setting of a linkage of interpersonal and inter-organizational connection (Axelsson & Easton, 2016). Such
connection can take any form formal, informal, or both, and can contain support from public agencies, friends and family, suppliers, customers, and competitors etcetera (Coviello & McAuley, 1999). According to (Zhou, Wu, & Luo, 2007), SMEs more organized,
opportunistic, swift and profitable in the global marketplace a good social network is well-thought-out a resourceful mean for internationalization. Internationalization defined regarding connections established from commercial operations and activities carried out jointly with other countries in foreign markets through three stages described by (Johanson & Mattsson, 1987). These stages include prolongation, penetration, and integration.
Prolongation takes place first to integrate the network well alongside investments made for the firm. Penetration develops secure and advanced positions for the SME within the integrated network and increasing its commitment resources. Integration is an advanced state where the SME seeks to extend financial, technological and commercial relations with other partners of the network to build more relationships to enable gradual enlargement (Lee, Kelley, Lee, & Lee, 2012). This means that after SME is already linked up to several national networks and is seeking to expand its territory to operate internationally.
but networks considered as a bridge to exploit opportunities and reduce the risk in foreign markets (Sharma & Johanson, 1987). Moreover, foreign firms through inward FDI, usually at the initial phases of international development, attempts to create and develop relationship amongst local customers and overseas seller, a possibility exists that such link could be utilized to approach a foreign network and familiarity about the overseas market (Welch & Luostarinen, 1993).
Born-Global
The trend of Born-Global started since the late 1980s, with a rising number of new SMEs international since initiation, and is progressively dominant in international business (Rialp, Rialp, & Knight, 2005). These kinds of companies usually aggressively generate funding, produce, and even offer for sale their products in multiple countries, specifically in highly developed technological industries where several well-known global competitors are already available (Freeman, Edwards, & Schroder, 2006a). Born Global are new SMEs consider a foreign market as the sum of opportunities, while such SMEs possess the only limited foreign market knowledge, and similarly to most SMEs, suffer from “liability of foreignness” or “liability of newness” when entering foreign markets (Gassmann & Keupp, 2007). These terms translate not only into additional costs arising from unfamiliar cultural, political and economic market conditions but also the need for geographic coordination across borders. These costs lower profitability of foreign SMEs competing against local firms on their home ground (Zhou et al., 2007).
no domestic base does not affect their rapid internationalization process using active involvement and utilization of networks (Oviatt & McDougall, 2005).
Ownership, Location, and Internalization (OLI) Approach: An Eclectic Paradigm
Dunning developed Eclectic model the most widely used framework to evaluate the design, location and choosing of Foreign Direct Investment when it comes to overseas production associated with a business enterprise. Such model considered the common analytical framework regarding scrutinizing the motives of MNE endeavors in the field of international business (Dunning, 2001). While it is primarily employed by the Western MNEs, as it applied to the international trade activities of non-Western types of business organizations, though hardly ever published research study has captured this concept (Dunning, 2001; Erdener & Shapiro, 2005).
According to eclectic theory three major variables which encourage firms to internationalize the business operations to foreign markets: Ownership, Location, and Internalization or usually denoted by “OLI” advantages (Dunning, 2001). Ownership of distinguished proprietary resources such as managerial capabilities, brands, design, and intellectual properties are firm specific features could be utilized competitively in an organized way in the international marketplace to exploit the opportunities. Location
advantage can consider for options to get into in foreign markets that offering greater market or superior production capacities to those readily accessible anywhere else and chance to safeguard valued inputs (Dunning, 2001). Moreover, (Dunning, 1977) suggests three main stimuli regarding location component:
In location component, Dunning (1977) suggests three major motivations: Resource seeking motive including strategic assets, efficiency seeking motive, and foreign market seeking a motive. Internalization benefits discuss companies’ reaction and aspiration to take benefit of foreign direct investment instead of a market mechanism, for example, licensing due to higher transaction cost of market mechanism rather than exporting company’s proprietorship advantages across the borders.
perception comes in with the challenge in extrapolating the contributions from large firms to SMEs and its limited application for SMEs rarely through FDI to internationalize (Kalinic & Forza, 2012). Apparently, this approach does not consider the influence of social relations in activities around transactions.
Latecomers Perspective
According to (Buckley & Ghauri, 1999), late comer perspective states that firms with competitive advantage can proactively internationalize which permits them to secure
sufficient profit to protect themselves from taking place extra charges and threats associated with going abroad.
The indicated perspective predominately extracted from analysis on developed
countries enterprises that are opportunistic, organized and have acquired substantial domestic potency as well as maturity before to internationalize. However, since the 1990s, MNEs and SMEs originating in countries that aren’t located amongst the traditional developed in the world progressively populated the global competitive scene. The literature mentions such firms in a range of ways such as, “third world multinationals”, “latecomers enterprises”, “unconventional multinationals”, “challengers”, and “emerging multinational,” (Guillén & García-Canal, 2009). While these firms might not own the highly cutting edge technological or marketing capabilities in their corresponding industries, these have certainly expanded around the world in innovative means. These firms have emerged as major players in FDI and cross-border acquisition (Ferdowsi, 2009).
To better understand the internationalization of emerging market firms, “Latecomers” theory offers a potentially useful contribution. The “latecomers” known for rapid
internationalization generally mentions the firms from countries such as East Asia e.g. South Korea, Taiwan and Hong Kong and among others India is a recent example of “Latecomers”. Latecomers show off in the business endeavor in the international marketplace to “catch up” countries those termed as early developing nation-states regarding know-how, technological development as well as improvement of business settings helpful of international
effectiveness (Guillén & García-Canal, 2009; Mathews, 2002).
Political, Law & Order, and Societal aspects of society. Such institutional context particularly “government and its agents”, tends to be important in the setting of a developing country business (North, 1990). Newly industrialized economies firms’ foreign direct investment approaches are usually impelled action by a complex interaction of institutional and organizational factors (Filatotchev, Strange, Piesse, & Lien, 2007). Industry environments and firm competencies are not the only drivers of strategic choices, but formal and informal constructions predominantly institutional structure in emerging economies that managers and entrepreneurs challenge (Peng, Wang, & Jiang, 2008).
Existing Literature Based Model
The following page exhibits a conceptual model based on the existing literature on SMEs internationalization in the developed countries. Here we assumed that
Figure 1: Model Manufacturing SMEs Internationalization Uppsala Model Network Approach Born Global OLI Model Latecomer Approach
- Utilize geographical & psychic proximity
- Step by step incremental commitment.
- Slow & gradual
- Expansion by experiential learning - Utilize existing networks
- Formal & informal networks - Inter-personal & inter-organizational networks - National & international level - Utilize product competitive advantages in foreign markets - Target niche markets individually or collectively
- Via innovative means - Cost & quality effectiveness
- Utilize firm & product competitive advantages
- Establishment in foreign markets - Owning all processes
- Reach foreign customers by firms itself
- Utilize existing competitive advantages plus access to critical resources in foreign developed markets
- Acquisitions & J.V in developed markets
- Sensitive, reactive & opportunistic
- Slow & gradual
- Potent domestic foundation prior internationalization - Organized and opportunistic - International pace depend on the nature of network
- Strong domestic base - Aggressive/Proactive and organized
- Rapid internationalization - Small or no domestic base doesn’t matter
- Reactive, opportunistic and organized
- Variable internationalization pace depends on situation
- Proactive, opportunistic and organized
- Rapid internationalization
InternationalStrategy InternationalApproach Internationalization Models
This research follows a constructionism research philosophy where the observer creates a social phenomenon to construct on what the researcher observed and what are the
dissimilarities in the respondent understanding (Östlund, Kidd, Wengström, & Rowa-Dewar, 2011). Moreover, an inductive approach applied because the researcher started with
observations to collect data using interviews concerning specific phenomena, the most commonly used method in qualitative research (Bryman & Bell, 2015). The nature of the proposed study is qualitative because the study such aimed to explore and investigate how the respondent interprets the reality in their environment (Bryman & Bell, 2015). Such method is suitable for investigative and exploratory research. So, such topic considered as a novel research area.
Research Design
Indian and Pakistani Small and Medium size enterprises internationalization topic is quite fresh, limited literature and research work conducted so far and remained unclear in many cases. The study intends to explore, a- How do Indian and Pakistani Manufacturing Small and Medium enterprises design their international entry mode?, b- What are the similarities and differences between emerging market (Indian and Pakistani) SMEs
internationalization models and the models prevalent in developed countries? Moreover, the generic obstacles being confronted by SMEs, and certain additional challenges that the Indian and Pakistani SMEs are confronting, for example, resource constraints compare to large firms and deficiency of marketing skill-sets and capabilities have an effect on internationalization (Freeman, Edwards, & Schroder, 2006b). Indian and Pakistani SMEs function in an
Sample Selection
According to MSMED act, 2006 Indian SMEs defined regarding investment in (plant and machinery for manufacturing firms) regardless of the numbers of employees. A
manufacturing firm with an investment limits $1million (INR 50m) consider small, and investment limit $ 2m (INR 100m) consider the medium. In Pakistan SMEs definition based on the limit of employees that is a firm is SME when the number of employees is between 10 and 250 (Malik et al., 2010). Indian definition of SMEs is different from definitions of SME in OECD and APEC economies which consider the number of employees as the basis of definition. Though, there are differences in definitions of SMEs across countries but internationally the most widely used method to define SMEs globally is the number of employees (Anderson, Dimaranan, Hertel, & Martin, 1997; Elmeskov, Martin, & Scarpetta, 1998; Zheng, O'Neill, & Morrison, 2009).
The planned sample size was 60 SMEs, and for that purpose, Miss Padma from the University of Groningen arranged my meeting with an Indian professor. He promised to connect me with required number of SMEs in India, but later on, he could not arrange due to his other commitments. In this way, due to time constraints and agreement with my
supervisor I continued with a sample of fifteen SMEs from India and Pakistan. Such SMEs belonged to the field of knowledge-intensive industry, such as manufacturing enterprise having potential and internationalized their activities, comes under the MSMED act, 2006 definition. A sample of ten SMEs in India and five SMEs in Pakistan selected which qualifies the conditions mentioned above and operating internationally.
Data Collection
To collect data, face to face and Skype as a medium of communication used to conduct interviews. Primary data collection is the base of this study via interviews to apply
Applied Approach
The applied approach is the application of CAQDAS (Computer Assisted Qualitative Data Analysis System) Atlas.ti software, a recommended tool for assembling and analyzing primarily text-based data. The process of ‘Data-to-Analysis’ started with connections to manufacturing SMEs in India and Pakistan operating internationally. Personal and referral connections were utilized to reach SMEs in these markets.
Research purpose explained, and each respondent’s consent took place prior than actual conduct of interview questions. Face to face interviews held with some Pakistani
entrepreneurs in Copenhagen during their exposure visit in Europe and an Indian entrepreneur in the Nederland. Further, a Skype interview conducted with each SME’s general manager or senior manager involved in the process of their internationalization.
Each interview took about one hour. All interviews carried out in local languages for the purpose of clarification, smooth conversation and easy transmission of ideas. All collected interviews notes converted into English version transcripts for the purpose of understanding and proper analysis. Each interview transcript edited via correcting, extending or revising original interview notes.
Analysis of interviews using Atlas.ti
All developed interview transcripts uploaded to CAQDAS ‘Atlas.ti’ as primary documents. Primary documents comprise of all data types generated during interviews and other data collection process. These primary documents used as the data source traceable during the entire process of analysis. An identification number assigned to each primary document to recognize them in each step of the analysis. Each primary document is a source of multiple quotations quoted by respondents. Each quote is further defined according to reflected ideas. Each defined quote segment coded attaching key-words or tags for the purpose to permit later retrieval and inspection.
Applied codes
Each code is properly defined to keep the information understandable and easy to incorporate. Each code represents multiple quotations from multiple primary documents. Quotes which express similar ideas come under a specific code, for example, firms that utilized their existing networks in national and international markets to reach foreign markets in their first attempt of internationalization assigned a code ‘Network Utilized’. All text organized in the database to store for further processing.
Applied Families
To link data, quoted segments coded as first order codes further connected with each other based on their relatedness known as family coding or pattern coding, clustered and formed categories to provide networks of information to understand the phenomena. Each family code comprises of multiple codes, for example, codes those represent networks of different types that assisted EM SME to enter a foreign market clustered under ‘Family Networks’. All codes those discuss networks connected to ‘Family Network’ and each connected code under specific family linked backed to several quotes.
Applied Memos
Some aspects of the data required deeper analysis to explore and get an understandable picture at a glance, therefore, memos created as reflective commentaries for such aspects of data. Memos are written information by the researcher over primary documents, quoted segments, codes, family of codes or all of them. Each memo is given a name that represents the idea, and each memo is further defined to show a detail and complex context in a simple and easy to understand a segment of text.
After the process of quoting and coding data segments finalized, the next step to analyze data and content for the purpose to derive conclusions. Therefore, different automated reports and figures developed by software produced, for example, words or phrases sequence, frequencies, location, linkages of quotations with codes and linkages of codes with families etc. All selected data displayed in a matrix of condensed and organized network for inspection purpose. The reports scrutinized to interpret the displayed data for the purpose to verify findings and draw a conclusion. Based on findings, hypotheses developed and presented for future testing to develop theory.
Analysis
The following section of analysis addresses the first question of the thesis that is: How
do Indian and Pakistani Manufacturing Small and Medium enterprises design their international entry mode?
Thorough Analysis of Whole Sample
Analysis of interviewed Indian and Pakistani manufacturing SMEs sample reveals some characteristics of two main entry mode theories ‘Network and Uppsala model’ in their first ever attempt of internationalization. Each interviewed firm used combined
characteristics of these two entry modes. Some of these companies further applied some characteristics of other internationalization approaches. Such as Born Global and OLI but the base of their internationalization is designed by networks and export. The analysis shows that whole sample firms started with exportation as the primary strategy of internationalization to neighboring, next to neighboring and farther countries in their first ever attempt of
internationalization. Such export facilitated by the widely utilized characteristic of ‘Network’ model. Utilized networks comprise of existing networks in the home market, foreign markets, and both. The whole sample shows that networks in national and foreign markets utilized in their first ever attempt of internationalization. Further, the analysis shows that established networks facilitated EM SMEs to export their products to foreign market which is a
characteristic of Uppsala model entry mode. Figure 1and 2, represent “Atlas.ti Output (Memo Family Network View) and (Business Strategy)” of the whole sample.
Figure 1: Thorough Analysis “Memo Family: Export via Network”
Networks utilization is a characteristic of ‘Network theory’ of internationalization. Network approach of internationalization postulates that a firm utilizes existing networks to find ways to produce in foreign markets and to exploit founded opportunity in the foreign market subject to prior development of technology and international standard certifications. Almost whole sample mentioned that they had some networks either in domestic markets, foreign markets or both of them. Such existing networks in domestic and foreign markets served to facilitate their entry into foreign markets. EM SMEs are resource-constrained firms, and networks have a distinct position in their international entry mode. Networks considered the most efficient and cost-effective sources to facilitate EM SMEs entry into foreign
neighboring and farther foreign markets. So, we can say that EM SMEs utilized existing networks, to ‘export’ their products to foreign markets as international entry mode.
Rapid Entry in Multiple Foreign Markets
Our analysis shows that some of the firms in our sample adopted some characteristics of “Born Global” entry mode of internationalization. They reached out to multiple foreign markets rapidly. Entering multiple foreign markets rapidly, production in multiple foreign markets to target a niche market in multiple foreign markets and competing with innovative means are main characteristics of ‘Born-Global’ entry mode.
Respondents’ reactions show that manufacturing SMEs in emerging markets utilizes their limited but competitive resources to produce competitive products in domestic markets. Such resources are available skilled labor at a lower price, advanced technology, access to raw materials, subsidies on raw material imports, and provisions of utility which collectively provide distinct characteristics to EM SMEs in their domestic markets. Such EM SMEs based on their competitive advantages produce unique products locally. Further, these EM SMEs utilize their links and connection in local and international markets, target a niche market in multiple foreign markets and export to multiple foreign markets rapidly. Figure 3, shows “Atlas.ti output (Network View MF: Export to Multiple Foreign Market)” of EM SMEs utilize their competitive advantages in their domestic markets. Such EM SMEs produce international standard and cost-effective products in their domestic market based on the requirements of target markets. Such EM SMEs focus on a niche market in multiple foreign markets and export to destination markets. The analysis shows, almost half of the sample firms from emerging markets adopted Born Global approach. They design their international entry mode in such a way to reach out to multiple foreign markets rapidly based on existing networks and export.
As mentioned above in ‘Thorough Analysis and Rapid Entry in Multiple Foreign Markets’ headings, EM SMEs utilize existing networks in the national and foreign market to facilitate their exports to neighboring, next to neighboring and farther countries. Existing networks only perform facilitator’s role rather than an internationalization model to be applied to access resources and production facilities in foreign markets. Moreover, EM SMEs utilizes existing domestic and international networks to export low price and international standard products targeting a niche market in multiple foreign markets. Hence analysis leads to following hypothesis:
and quality competitive products in domestic market, and export to a niche market in multiple foreign markets.
International Entry Mode by Inward Internationalization
Some EM SMEs exhibit a distinctive mode of internationalization which is known as ‘Inward Internationalization’. EM SMEs utilize their prior networks and links with foreign MNEs to reach an agreement to provide EM SMEs advance technology, upgrading their soft and hard skills in EM SMEs domestic markets as shown in figure 4”Atlas.ti Output Network View (MF: Inward Internationalization)” .
Figure 5: Inward Internationalization
After economic reformation and adoption of the market economy by emerging markets
governments, competition with traditional technology was almost impossible in these
markets. Like all business entities EM SMEs felt extra ordinary need for the development of technology, attainment of international certifications, and enhancing skills to compete in the national and international market. EM SMEs utilize their personal resources, existing links and networks to get assistance from their foreign partners (MNEs) for technology up-gradation in SMEs’ domestic markets. Such SMEs in emerging markets further upgraded their soft and hard skills with the help of their foreign partners. EM SMEs attained
Subsequently, EM SMEs export their products to foreign partners’ home countries. Such approach of development where using assistance from foreign partner and then entering foreign partner’ home market called ‘Inward Internationalization’. Sources of existing
personal networks among EM SMEs and foreign companies served as conduits for EM SMEs to enter foreign markets. Such SMEs in emerging markets first utilized existing networks to get inward internationalization that further facilitated them to export to foreign markets.
Entry Mode via Following Domestic Firms in International Market
EM SMEs exhibit another entry mode of internationalization which is called “Domestic Clients in Foreign Market”. EM SMEs export to domestic clients in foreign markets. Such domestic clients were used to be ‘Large Firms’ in EM SMEs domestic market while EM SMEs served them as tier 1 supplier in the domestic market as shown in “Atlas.ti output figure 5 (Network View: MF Following Domestic Clients in International Market) in the appendix.
Economic reformation in emerging markets brought fierce competition which
compelled domestic firms to tap opportunities in foreign markets. Therefore, existing clients (Large Firms) decided to undertake cross border activities. Such ‘Large Firms’ developed themselves and expanded into international markets. These firms were major auto producers in the domestic market. In this way, EM SMEs consider such an opportunity for themselves as well. EM SMEs utilized existing networks with their existing clients in domestic markets. EM SMEs develop itself and start international standard production. EM SMEs based on existing established networks with ‘Large Firms’ in their domestic markets export to all destinations e.g. neighboring to farther countries where their existing clients operate. Existing clients in emerging markets now became the international clients in foreign markets. In this way EM SMEs in emerging market find it most efficient and secure to reach foreign markets. Such strategy of internationalization is known as “Internationalization via following domestic clients in foreign markets”.
As shown in the analysis ‘International Entry Mode by Inward Internationalization and
Domestic Firms in Foreign Markets’ headings, some EM SMEs design and develop some
unique international entry modes in their first ever internationalization attempt. Such
markets, utilizing prior links, and connection produce in home markets, and export to the most secure available clients in foreign markets. Therefore, analysis leads to following proposition:
Hypothesis Q 1c: Emerging market SMEs utilize their existing networks with large national and foreign firms, location and low-cost resource advantages to get upgraded, to design inward internationalization and internationalization via following domestic firms in international markets.
Entry Mode by FDI
The analysis of EM SMEs further shows that some firms started with export to foreign markets utilizing existing networks that led them to grab the available opportunity in foreign markets. Opportunity in foreign markets usually attained via export from EM markets, but with the passage of time it leads to foreign investments by EM SMEs as shown in figure 6 Atlas.ti Output Network View (MF: Export Led Foreign Acquisition)”.
Figure 6: Analysis by FDI
Such firms started with the export to foreign markets as their first entry mode in foreign market. EM SMEs utilized their existing established business networks in foreign markets that facilitated them to enter in a joint venture with their existing clients in other developing market. Even though, joint venture took place in a foreign country, still EM SMEs export basic parts from EM SMEs home market to foreign unit to keep competitive advantages sustained in foreign markets.
export technical labors from home market to their foreign subsidiary to keep their competitive advantages sustained in advanced foreign markets, such as Europe. Such approach shows that EM SMEs FDI international entry mode linked to its home country’s products and competitive advantages. Therefore, analysis leads to following hypothesis:
Hypothesis Q1d: Emerging market SMEs commit FDI international entry mode only, when EM SMEs can link their domestic market competitive advantages to their foreign production units.
Analysis by Industries
International Entry Mode of EM Auto Manufacturing SMEs
The Auto SMEs in our sample comprise of the largest group industry wise as shown in figure 7 “Atlas.ti (Output Network View MF: Auto SMEs)” in the appendix. The analysis of this group shows that all SMEs utilized their existing networks in home markets, and foreign markets. Based on their existing networks, EM auto SMEs initially find their ways to
neighboring, next to neighboring and farther countries. Further, all EM Auto SMEs started export to foreign markets. Some of them understand quickly the requirements of other international markets. They further focus on a niche market in multiple foreign markets and start with export to multiple foreign markets rapidly. Some of the EM Auto SMEs show that they follow domestic clients in international markets. Such EM SMEs have strong relations with big domestic clients, so based on their existing networks, EM Auto SMEs export to their clients when they started international operations.
International Entry Mode of Agricultural SMEs
Agricultural SMEs the only segment in our sample which started to export to neighboring countries utilizing existing networks. Further, they appear in multiple foreign markets. Such EM SMEs increased their commitments in the foreign markets and entered into joint venture and joint R&D activities in the foreign markets as shown in figure 8 “Atlas.ti (Output Network View MF: Agriculture SMEs)” in the appendix. Despite of joint ventures in the foreign markets such EM SMEs linked domestic products to their foreign operations. Such EM SMEs export their products to the foreign markets even where they have joint ventures to keep their competitive advantage sustainable (production in emerging markets).
Internationalization of EM Construction SMEs
Construction SMEs is a small segment in our sample. The analyses of such SMEs show a combination of characteristics of ‘Uppsala and Network’ approaches mode of internalization as illustrated in figure 9 “Atlas.ti (Output Network View MF: Construction SMEs)” in the appendix. Such EM SMEs started with export to enter into the neighboring countries first. These firms utilized existing networks both in national and neighboring markets which facilitated export to neighboring countries. Such SMEs started with contract and direct export to neighboring countries based on their existing links and connections. Later on, such SMEs entered via export to other markets in other continents based on their
competitive advantages and existing established networks.
The analysis further shows that EM construction SMEs started exporting to neighboring countries based on existing networks, and once they got experience then entered near and farther countries via export.
Analysis by Age of EM SMEs
International Entry Mode of EM SMEs Internationalized Before the Year 2000
The analysis shows that EM SMEs, which attempted international operations before the year 2000, is the largest group in our sample, as shown in figure 10 “Atlas.ti (Output
Network View MF: International Before Year 2000)” in the appendix. Such group of EM SMEs show mixed results.
These firms started to export via independent exporters and direct export to foreign markets which show some characteristics of Uppsala mode of international entry mode. A few firms in the sample further show rapid entry into multiple foreign markets targeting a niche market. Such EM SMEs export specialized, international standard products at a lower price to multiple foreign markets. Only one EM SME in the sample succeeded to acquire a production unit in foreign market.
International Entry Mode of EM SMEs Internationalized After the Year 2000
The analysis of EM SMEs segment which internationalized their operations after the year 2000 comprises of three members as shown in figure 11“Atlas.ti (Output Network View MF: International After Year 2000)” in the appendix. Such EM SMEs belongs to different industries. These SMEs started their first ever international activities with their neighboring and psychic closed countries. Like others, these SMEs utilized their existing networks to reach neighboring foreign markets. All three SMEs internationalized rapidly to multiple foreign markets which show some characteristics of ‘Born Global’ entry mode. They focused on a niche markets in the multiple foreign markets. Such SMEs seem quite rapid in their development and international expansion of operations as compared to EM SME
internationalized before the year 2000. One member of this group took a further step and started joint R&D in some foreign markets. Such situation shows that recent rapid
development in information, communication, technology and infrastructure facilitated EM SMEs to internationalize at a faster pace than SMEs internationalized pre - 2000. So, we can conclude that, more recent the SMEs are, more active and faster is their internationalization.
Analysis by origin of SMEs
markets as shown in figure 12“Atlas.ti (Output Network View MF: Indian SMEs)” in the appendix. Their approach to adopt export as international entry mode is due to their
competitive production position in India. Out of ten firms only three firms further expanded to multiple foreign markets with the objective to target a niche market in foreign markets i.e. two firms belong to auto industry and one from construction industry. Further, only 2 firms showed increased commitment in the foreign market that is joint venture and acquisition with the objective to exploit full opportunity, each of them belongs to agriculture and auto
industry. Such firms linked their FDI backward with their competitive advantages in SME home country. Moreover, two out of ten firms exhibit Inward Internationalization which belongs to auto industry with the objective to get advanced technology and managerial skills. Only one firm belongs to auto industry shows internationalization via domestic clients with an objective to access easiest and safest way to develop and reach international markets.
On the other hand, Pakistani firms comprise of five SMEs, while three of them reached to multiple foreign markets and target a niche market. These SMEs belongs to three different industries. The analysis shows that their objectives were to produce international standard products with a competitive price to grasp opportunity in foreign markets and tackle domestic decline rapidly as shown in figure 13“Atlas.ti (Output Network View MF: Pakistani SMEs)” in the appendix. Moreover, one firm entered in a joint venture in the foreign market. In short, the analyses show that Pakistani firms are more active, faster, and opportunistic but usually small in size and less technical than Indian firms. Indian SMEs show mixed results but mostly belong to very technical industries.
The following section of analysis addresses the second question: Sub-question: What are the similarities and differences between emerging market (Indian and Pakistani) SMEs internationalization models and the models prevalent in developed countries? Different characteristics of the sample firms analyzed to compare them with existing prevalent internationalization model in advanced countries.
Approach to Internationalization
SMEs combine their existing experience and acquire advanced technology to produce
international standard products. They keep their production base in domestic market to utilize their competitive advantages and produce high quality products at a lower cost to compete in international markets. EM SMEs also focus on a niche market with product of unique feature ‘Price Quality mix’. In this way, EM SMEs are organized and opportunistic in their
internationalization approach. Beside organized and opportunistic, EM SMEs show a proactive approach as well. After sensing an opportunity in foreign market, EM SMEs start export and begin to explore new markets as a proactive approach. In a few cases EM SMEs show reactive approach, but that was linked to their existing level of commitment in a foreign market. In sum, a major portion of our sample firms mentioned that their international
approach as organized, and opportunistic. A few mentioned proactive, sensitive, and reactive approach of internationalization depends on their status in the home country market,
regardless of foreign market condition, such as their technology base and networks in domestic market.
Figure 14: Approach to Internationalization
Speed of Internationalization
View Family: Speed of Internationalization)” in the appendix. That is, their international strategies rely on their existing networks, so their speed of internationalization linked to the status, strength, and volume of their networks. Strong networks in national and multiple foreign markets can facilitate internationalization in multiple countries, while limited networks result in a slow speed of internationalization.
Further, the second highest number of firms in our sample from EM SMEs shows swift internationalization in multiple foreign markets which is a characteristic of Born Global approach. Only firms that utilized their existing resources and extensive networks in home and foreign markets could export their products in multiple foreign markets. Such firms further utilize their networks to multiply their existence in more markets. A small number of firms exhibit a slow and gradual speed of internationalization based on their resources and approach.
Domestic Market
Domestic market refers to EM SMEs home market and EM SMEs condition in the home market prior than internationalization as shown in figure 16 “Atlas.ti (Output Network View Family: Domestic Market)”.. The analysis shows that highest number of EM SMEs mentioned that they had strong domestic base prior than internationalization. They attained advanced technology plus enhanced skills with sound experience in the home market from national and international partners prior than internationalization utilizing existing established networks. This is a characteristic of network approach of internationalization. Such EM SMEs operate for a long time in their own country before they started their activities in foreign markets. So, their domestic experience, and dealing with existing large domestic clients prior than internationalization facilitated such EM SMEs to develop their home base.
Psychic Distance
Psychic distance means that whether EM SMEs start their international business with culture, and distance proximate countries. We found only two main views in this regard. A high proportion of respondent mentioned that psychic distance does not matter in their internationalization. They consider foreign markets as the sum of opportunities whether they are closer or farther foreign markets. They entered in foreign markets based on their
competitive advantages. Such EM SMEs usually target a niche market with high quality products and lower price and enters in multiple foreign markets rapidly.
The other view of respondents mentioned that this is important to start international activities first with cultural and distance closed countries. Such EM SMEs consider that closeness is a source of the competitive advantages. Such closeness is an easy source to understand the taste, requirements and demands of cultural and distance closed foreign markets. This view belongs to EM SMEs with limited resources and curious of foreign markets, but due to declining domestic markets they need to find alternative markets in foreign countries as shown in figure 17 “Atlas.ti (Output Network View Family: Psychic Distance)” in the appendix.
Reason to Internationalize
Foreign Market Advantages and Vision
Almost all respondents mentioned as presented all codes in figure 19A “Atlas.ti (Output Network View Family: Market Advantage)” and 19B “Atlas.ti (Output Network View
Family: Vision of Foreign Market)” in the appendix, that there were competitive advantages based on which EM SMEs entered and compete in foreign markets. Such competitive advantages comprise of specialized knowledge (highly skilled and semi-skilled labor) at a competitive price, upgraded and advanced technology attained from national and
international markets, and partners. Further, the sound experience of EM SMEs achieved in domestic market prior than internationalization enhanced their competitive advantages in foreign markets. A small number of respondents possessed transferable advantages into a foreign market as their competitive advantages. Such transferability refers to the transfer of entire production factors into a foreign market.
The analysis shows that EM SMEs’ view about foreign markets is the sum of opportunities. Their vision is that foreign markets are full of opportunities and a source of growth. Respondents believe that once the quality of the product is of international standard and the price is comparatively lower, then export to the foreign markets is an opportunity to overcome the domestic decline in demand. Some firms seem that foreign markets are the sum of risks. They found an entry in foreign country a risk but they suggest that keeping the risks as lower as possible. Such types of EM SMEs are very sensitive and they increase their foreign commitments very slow and gradual.
Suggestions by EM SMEs Experts
Further, each participant was asked to express their expert views on how EM SME should internationalize their operations. Suggestions by experts in the emerging markets were somehow similar and closed to each other. All fifteen participants suggested that EM SMEs must attain advanced technology, well-trained and expert work force, understanding
Firstly, all fifteen experts mentioned that advanced technology is the primary requirements for EM SMEs to upgrades and produce international standard products. Secondly, thirteen respondents suggested that international standardization using
international standard organization certificates the most important factor and a pre-requisite in the international business. Thirdly, ten respondents mentioned that the lower price is the most important aspect of competing in international market, which is possible to attain in emerging markets due to lower cost of factors of production. Fourthly, thirteen respondents mentioned that networks in the national and international markets are critical that could facilitate resource-constrained EM SMEs to reach foreign markets efficiently. Networks are a cost-effective approach to reach cross-border markets. Fifthly, thirteen responded suggested export as the most effective way for EM SMEs to enter foreign markets. This is linked to the competitive advantages SMEs can attain by producing in emerging markets. Further, only two respondents each from ‘A.R Plastic and Continental Engines’ mentioned that EM SMEs need to grab opportunities in foreign markets using joint venture and acquisition, but such SMEs need to link their domestic competitive advantages to their foreign operations. Such competitive advantages referred to the utilization of home market technical labors in foreign markets and export of those products which EM SME comparatively produce at lower price which is an advantage in their domestic country. Details regarding full quotations by the experts in emerging markets presented in the report 9, under Family Code: “Suggestion by EM SMEs Experts” available in the appendix.
Above analysis shows that there are differences between emerging markets and advanced market SMEs and hence EM SMEs design their own internationalization models based on their capabilities, requirements, and environmental settings. Therefore analysis leads to the following hypothesis:
Hypothesis Q 2: Emerging markets contextual settings, locations, facilities, and resources compel SMEs to apply some of the unique as well as modified versions of prevalent internationalization models based on EM SMEs requirements.
Following two tables summarizes the whole analysis by answering the research questions.
Question 1 has been answered by dividing the answer into two parts. 1- ‘Objective’ which means that what are the objectives of EM SMEs to internationalize, 2- ‘Entry Mode’ means that what specific international entry mode EM SMEs design to achieve their
objectives.
Question 2 has been answered by comparing the characteristics of different entry modes adopted by EM SMEs with those of prevalent internationalization models in advance countries.
Table 1: Summary of the Analyses to Question 1
Q 1- How do Indian and Pakistani Manufacturing Small and Medium enterprises design their international entry mode?
domestic production is the base of their competitive advantages. export to domestic clients in foreign markets. and export to MNCs subsidiaries and headquarter.
Table 2: Summary of the Analyses to Question 2- Sub-question
Q 2- Sub-question: What are the similarities and differences between emerging market (Indian and Pakistani) SMEs internationalization models with the models prevalent in
developed countries?
EM Manufacturing SMEs do not apply any of the internationalization models prevalent in advanced countries in full version. Though, EM SMEs modify and apply some of the
characteristics of advanced countries models subject to EM SMEs contextual requirements and ground realities. EM Manufacturing SMEs apply two more novel approaches in their
internationalization processes such as, Following Domestic Clients in International markets and Inward Internationalization. Advanced Economies Prevalent Models Uppsala Model Networks Approach
Born-Global OLI Model Latecomers
foreign markets and serve foreign markets. firm itself to reach foreign customers Emerging Markets SMEs Internationaliz ation Models Uppsala (export only) Uppsala + Network Uppsala + Networks + Born-Global
Uppsala + Networks + OLI + Latecomer.
Characteristics Export is the primary entry strategy in neighboring, next to neighboring and farther countries regardless of psychic and geographical distance. Existing established national and international networks are considered the pre-requisites for all sort of cross border activities. Networks serve as primary and complementary factor to develop and channelize export. Utilizing existing national and international networks to target a niche market in multiple foreign markets, Production of low cost and international standard products in domestic markets and export to multiple foreign markets.
Utilizing existing established international business networks, commit FDI only when domestic competitive advantages can be linked to foreign units.
Table 3: Detailed Comparison of Internationalization Models
The detailed comparison of EM SMEs internationalization models with models discussed in the literature prevalent in advanced countries.
COMPARISON OF UPPSALA, NETWORKS, BORN GLOBAL, OLI, LATECOMERS APPROACHES Uppsala Model Network Approach Born Global OLI Latecomers Approach Exclusive to EM SMEs Business Strategy Gain experience in domestic market then step by step incremental commitment in culturally and Utilizing existing networks at national and international level to access production Target a niche market with innovative, high quality and performance, and cost Utilizing firm/product competitive advantages, derive greater advantage via firm’s foreign Acquiring critical resource in the foreign market via FDI, acquisition etc., plus
