Speed of SME internationalization and performance.

VerfasserHilmersson, Mikael
PostenRESEARCH PAPER - Small and medium-sized enterprises - Report - Statistical data

Abstract This paper studies the performance consequences of the speed of SME internationalization. The authors identify three research gaps: few studies treat speed as an independent variable; most studies analyze speed only until internationalization starts; and, finally, studies have paid little attention to the multidimensionality of the speed concept. The authors seek to address these gaps and to contribute to the literature on the dynamics of internationalization by developing three measures of internationalization speed, which capture its multidimensionality. Building on the theories of learning advantage of newness and time compression diseconomies, the study presents three hypotheses on speed's effect on performance, and the theoretically derived research model is tested on a sample of 183 SMEs visited on site. The analysis demonstrates that the speed of a firm's increase in the breadth of its international markets has a positive but curvilinear effect on firm performance. It also demonstrates that the speed of a firm's increase in commitment of foreign resources has a negative but curvilinear effect on the performance of the firm. These results have implications both for scholars interested in the dynamics of firm internationalization and for SME managers.

Keywords Internationalization * SMEs * Speed * Performance

1 Introduction

This paper explores the relationship between speed of international expansion and performance of small and medium-sized enterprises (SMEs). Recently, the speed at which SMEs expand internationally has received increased research attention (Casillas and Acedo 2013; Casillas and Moreno-Menendez 2014; Acedo and Jones 2007; McDougall et al. 2003) and has come to occupy a central position in the debate on whether traditional models are still valid or whether firm internationalization should be viewed in new ways. Traditional models view internationalization as a risk-reducing (De-Lemos et al. 2011) and incremental process (Cavusgil 1980; Johanson and Vahlne 1977). Firms commit resources to international operations when they have sufficient experience to reduce uncertainties, but as the accumulation of experience takes time, internationalization represents a time-consuming and therefore slow process. Recent research, in contrast, argues that internationalization can occur more rapidly. International new ventures (INVs) challenge the validity of the traditional models (Oviatt and McDougall 1994). INVs operate internationally from their inception and internationalize faster than traditional models predict (Chetty and Campbell-Hunt 2004; Knight and Cavusgil 1996). In light of this background, this paper addresses three research gaps in the literature on the speed of SME internationalization.

First, most studies of SME internationalization speed focus on the amount of time that elapses from a firm's inception until it starts internationalizing; less is known about continued SME internationalization after this point. In the reported research, a short time between a firm's inception and its first foreign entry is treated as indicating rapid internationalization. This means that there are no studies of the manner and speed with which SMEs spread their operations beyond the first step abroad. Most studies analyze only the starting phase, in fact studying only the time it takes an SME to start activity in its first foreign markets.

Second, articles tend to view SME internationalization as a unidimensional activity, comprising mainly exports. This means that several important dimensions of SME internationalization, especially beyond the inception of the firm and its start of internationalization, are neglected. Building on Casillas and Acedo (2013), we develop a measure of three dimensions of SME internationalization speed: speed of increasing breadth of international markets, speed of increasing international commercial intensity, and speed of increasing commitment of resources to foreign activity.

Third, most research on SME internationalization speed has sought to address the determinants of rapid internationalization; less is known about the consequences of such speed. We address this shortcoming by outlining a conceptual model with three hypotheses anchored in research on the learning advantage of newness (LAN) (Autio et al. 2000) and time compression diseconomies (TCDs) (Dierickx and Cool 1989), and we view internationalization as a process of capability development (Jiang et al. 2014).

The remainder of this paper is structured as follows. First, we present our theoretical background by anchoring the study in internationalization process theory and the international entrepreneurship school. After this, we review the literature on internationalization speed and explore the targeted research gaps in more detail. We then define the concept of speed and develop the speed-performance relationship and generate the hypotheses. Next, the methodology is presented, followed by the data analysis. The results of the hypothesis tests are discussed and the conclusions are then presented. The final section of the paper presents the theoretical and managerial implications of this research.

2 Theoretical Background

2.1 Speed in Internationalization Models

Regarding firm internationalization, two main research streams are dominant, and both internationalization process theory (Bilkey and Tesar 1977; Cavusgil 1980; Johanson and Vahlne 1977) and the INV stream (Oviatt and McDougall 1994) view internationalization as a process that occurs over time. These streams try to explain the dynamics of the process by developing temporal concepts. Internationalization process theory predicts that internationalization is an incremental process by which a firm gradually expands its international operations over time (Johanson and Vahlne 1977; Johanson and Wiedersheim-Paul 1975). Starting in the early 1990s, observations of INVs called for alternative explanations (Oviatt and McDougall 1994). INVs are seen as resulting from more global market conditions, for example, because of market homogenization (Oviatt and McDougall 1994), the increasing role of global niche markets (Knight 1997), and advances in technology and communication (Cavusgil 1994). Researchers applying these ideas (e.g., Bell 1995; Cavusgil 1994) argue that the incremental models are no longer valid for newly started firms. But other researchers (e.g., Bloodgood et al. 1996; Madsen and Servais 1997) claim that the classical models are valid for INVs if their founders' experience is taken into account. Though these views have partly different foci, both schools recognize time as a concept that affects internationalization, but they have different time-related emphases. Internationalization speed refers to the degree of internationalization that a firm achieves during a specific period (Casillas and Acedo 2013). INV theory suggests that, while internationalization has conventionally occurred slowly, INVs have internationalized rapidly; however, other than a study by Khavul et al. (2010), there are no empirical studies of the speed of internationalization, but several on how long it takes before SMEs start to internationalize.

2.2 Gaps in Research on the Speed of SME Internationalization

As outlined in the introduction, the concept of internationalization speed has recently been increasingly researched, though we claim that there are gaps in the extant research. Our review (1) (see Table 1) found that the literature could be analyzed along four dimensions: the international market(s), the period of international market entry, the internationalization activity, and internationalization speed as a dependent or independent variable.

2.2.7 Temporal Perspective and Speed as a Variable

The period analyzed in most articles starts from firm inception and extends to the start of internationalization, a short period between these events representing a high internationalization speed. The period after internationalization starts is studied in five articles (Chetty et al. 2014; Hilmersson 2014; Lin 2012; Morgan-Thomas and Jones 2009; Zhou 2007), but only three of them have a long-term perspective on speed (Chetty et al. 2014; Hilmersson 2014; Morgan-Thomas and Jones 2009). This indicates that there is limited knowledge of internationalization speed in the medium and long terms. This means that, instead of examining the speed at which an SME spreads its activities internationally, these studies examine the time it takes before the SME starts to internationalize. Thus, along the lines argued by Casillas and Acedo (2013), we question whether the introduced measures are valid measures of the speed of internationalization. Actually, they seem to be better indicators of the speed of beginning internationalization. Consequently, the concept of speed suffers from the lack of a common definition in the internationalization context, so an agreed-upon measure is also lacking.

Most research on speed, in turn, concerns the antecedents to or determinants of the speed at which firms internationalize. In the literature review, only the studies by Chetty et al. (2014), Hilmersson (2014) and Khavul et al. (2010) treats speed as an independent variable. Thus, several researchers have studied the factors affecting the amount of elapsed time (in years) between the year a firm is founded and its first international venture; however, less is known about the consequences of speed. From existing research, we know that language competence positively affects speed (Musteen et al. 2010), that firms entering markets with lower levels of regulatory hazard internationalize faster (Coeurderoy and Murray 2008), that firms with a great deal of international experience internationalize faster, and that the degree of risk perception regarding international operations is negatively associated with speed (Acedo and Jones 2007). Moreover, Zucchella et al. (2007) found that firms belonging to...

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