A Systematic Analysis of the Factors that Drive SMEs to Internationalisation and the Paths followed by these Firms : An Exploratory Study of Four Highly Technological Firms in Sweden

Abstract: Due to globalization and other factors, the business environment of small and medium sized enterprises (SMEs) is radically changing. In order for these firms to cope with increased competition and business opportunities in globalised markets, they have to strengthen their innovative capabilities and internationalise their business activities (Rammer and Schmiele, 2008, p.3). In this paper, I investigate the determinants that drive highly technological SMES from Umea (Sweden) to other markets abroad and the paths followed by these SMES.The choice of Highly technological SMES (i.e. SMES with innovative solutions) is mainly due to the fact that they internationalise at a fast pace and often bypass the traditional methods of internationalisation proposed by the Uppsala model of internationalisation. The Uppsala model of internationalisation was used as a reference point where similarities and discrepancies between findings was analysed. In addition to this, a general analysis on how managerial internationalisation strategies are drawn was carefully outlined. Core focus is placed on the importance of resource evaluation, proper entry modes, networking and the inclusion of deinternationalisation as a contingency plan in case the market becomes unresponsive due to rise in cost or high competitive pressures.   By carrying out a qualitative research and a cross-sectional analysis of some four firms operating in the highly technological sector of the Swedish economy, I obtained findings that; Swedish SMEs do not seem to be pushed to internationalisation by increased competition (such as threat of market position through new entrants or a fierce price competition), but rather go abroad with innovative activities when they have a niche market position, i.e. a low number of competitors and a patent-based technology advantage (Rammer and Shmiele,2008,p.3). Concerning the paths followed by these SMEs to international markets, I outlined that the starting point of SMEs is to carry out an evaluation of their resources (physical, human and financial).Careful evaluation of these resources will enable managers detect if the company can cope with foreign expansion. With this information, they can seek for resources that are not internally possess by the company through establishing networks with distributors, firms, suppliers and their customers. With this network, the firm can obtain both market specific and general knowledge of the foreign market. With all this information at hand, the entry mode must be considered. It is of great importance because the cost and risk involve in foreign markets are mostly associated with the chosen entry mode. Because international expansion involves taking risk, I advise managers on setting up a threshold where they can withdraw if the value of the firm begins to drop. However, I urge them to be careful not to withdraw either prematurely or too late. Therefore, I conclude that though international expansion can help SMEs overcome resource constraints, they should however be careful on how they internationalised by following the paths I outlined.       Keywords; Internationalisation, Networking, Resourced Based Perspectives, International Entry Mode, SMEs, Deinternationalisation