Motivating SMEs to Cooperate and Internationalize

A Dynamic Perspective

George Tesar, Zsuzsanna Vincze

• Publisher: Taylor & Francis
• Year: 2017
• eBook ISBN: 9781315412597
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Negocios en general

Interest in generally expanding the understanding of small and medium-sized enterprises, especially understanding their strategies and operations to enter international markets, is growing rapidly among researchers and academics globally. Government officials, regional and economic specialists, and international trade advisers are directly involved in assisting small and medium-sized enterprises in developing their international marketing expertise.

Motivating SMEs to Cooperate and Internationalize consists of research studies, cases, and experiences obtained by researchers and academics from managers of small and medium-sized enterprises in Northern Europe as they worked closely with managers on issues and problems leading to internationalization of enterprises. This book will map not only the attempts of small and medium-sized enterprises in Northern Europe to enter foreign markets, but also to understand how researchers and academics can help small and medium-sized Northern European enterprisers achieve their objectives. This compilation of approaches, perspectives, and experiences will serve as a resource tool for researchers and academics active in international management training programs worldwide and help illustrate how to close the gap between publishing results of their findings and efforts to disseminate their findings among managers of small and medium-sized enterprises in their domains.

This book is the first attempt to integrate results of research studies and practices as an illustration of how knowledge of small and medium-sized enterprises has evolved since the 1980s with the contributions of individual researchers and academics in Northern Europe. It will be of relevance to academics and researchers interested in working closely with small and medium-sized enterprises to meet their goals in entering international markets.

1 Motivating SMEs to Cooperate and Internationalize

A Dynamic Perspective—Introduction

George Tesar

1. Introduction

Small and medium-sized enterprises (SMEs) are considered the foundation of economic and social development and provide a platform for industrial growth. Motivating SMEs to cooperate and internationalize is a complex task. They are managed by managers with diverse personalities, ambitions, and managerial skills. SMEs range from low-technology locally oriented, craftsmen-operated shops to sophisticated high-technology manufacturing entities managed by rational managers with extensive decision-making skills.

Successful SMEs, especially high-technology innovative entities, quickly expand and enter markets beyond their initially perceived boundaries. In order to better utilize their resources, because of their own initiatives, or due to external motivations, they realize that they need to cooperate with other SMEs. Their search for markets also leads to their internationalization in addition to cooperation with other SMEs. However, neither cooperation or internationalization is a simple progression of strategic and operations initiatives for most SMEs. These are complicated and time-consuming managerial decisions (Kuada 2016).

From a socio-economic perspective, SMEs are sought after and embraced by communities, municipalities, and localities because they create social and economic value—they create employment, increase tax revenues, and stabilize economic and social conditions. Local, regional, and national governments offer incentives to entrepreneurs, startups, and existing SMEs to expand beyond their current markets and create additional jobs. Some governments provide direct assistance to SMEs to start export operations or obtain additional information to increase them.

SMEs frequently disturb markets because of their entrepreneurial tendencies and through their propensity to innovate. Depending on the environment in which SMEs operate and the nature of their innovation, they dramatically alter traditional markets. Examples in computer technology, telecommunication, or medicine illustrate how SMEs startups disturbed existing markets, developed new industries, and changed consumers’ lifestyles. Similarly, the entire service industry was founded by SMEs. Motivations for entrepreneurs such as craftsmen, promoters, or rational managers may differ, but collectively they provide value for customers, consumers, and users.

Northern European SMEs

SMEs in Northern Europe are similar to their contemporaries in other parts of the world in terms of their initiatives, but differ in some ways. The rural environments in which they operate do not provide the same resources as do urban environments endowed with a variety of rich resources. Many Northern European SMEs are in geographically remote areas. They started in remote places because there were opportunities to develop special products or services to established industries such as agriculture, forestry, mining, or ship building. This was the case in the Nordic countries. Similar conditions existed in Northern Germany, Poland, and even the Baltic countries. Over time the technological sophistication of these industries changed. Some SMEs were responsible for innovative initiatives that dramatically changed the industries through automation improvements in production and manufacturing. Some industries ceased operations in those regions and the SMEs that coexisted with them closed their operations or were forced to redefine their missions.

SMEs in Northern Europe need to be flexible, resourceful, and innovative to prosper. Their managements need to understand how to succeed in rapidly changing environments when industries shift their operational emphasis or simply move elsewhere. SMEs cooperate with other SMEs to offset disruptive challenges by forging alliances, developing industrial clusters, or sharing research and development initiatives among other forms of cooperation. However, not all managers of SMEs behave proactively in entering cooperative arrangements; some need to be externally motivated (Tesar and Bodin 2013).

Furthermore, SMEs form cooperatives closely resembling supply chains or even complete value chains in some regions. There are several cooperatives in Northern Sweden, for example, whose range includes maintaining forests, saw mills, carpenter shops, design and production facilities, and marketing and sales organizations. One of the cooperatives specializes in producing staircases, stages for theaters and concert halls, and other custom built wooden indoor structures. In Denmark, agricultural cooperatives produce lines of dairy products for local consumption. In Norway, SMEs join cooperative ventures to maintain and service ships and other marine equipment. Most SMEs that cooperate in various local ventures are concerned about their future and seek opportunities in order to remain profitable and survive (Asheim et al. 2003).

Other SMEs are not as proactive and wait until opportunities develop or until they are approached by other SMEs or some initiators sometimes called vision catchers. They are reluctant to participate in any cooperative ventures until presented with complete plans and strategies they understand. Local governments represented by economic development agencies, universities’ business development and innovation centers, and commercial entities such as Chambers of Commerce try to motivate managers of reluctant SMEs to participate in cooperative ventures. Such SMEs need to be assured and have sufficient information to decide if they will join.

SMEs operating in geographically remote regions also require assistance in their attempts to venture beyond their perceived markets. They identify and relate to markets that are close by and familiar to them geographically and culturally. Expansion into regional or national markets is not generally a major challenge; crossing national boundaries is. To cross national boundaries into unknown territory can, in fact, be a major challenge. Crossing national boundaries represents substantial investments for some managers of SMEs in remote regions of Northern Europe.

In addition, SMEs need to restructure strategically and operationally to internationalize. At a minimum, they need to reexamine their products and services to determine if they are suitable and competitive for international markets and if they have the managerial knowledge and skills to enter international markets directly or indirectly. This challenge is difficult for SMEs that operate in remote industrial environments and specialize in products and services tied closely to a single industry. Most SMEs faced with such challenges not only need additional information, but they need additional managerial and marketing skills (Hultman 1999).

It is also important to consider that for SMEs operating in Northern Europe, to be international means to export. Very few SMEs have the resources or knowledge to enter foreign markets as partners in joint ventures, license their products or services, directly invest in an ongoing venture or open a subsidiary. Internationalization occasionally takes on a completely reverse aspect. An SME located in a geographically remote region may be approached and eventually purchased by a foreign entity. In such a case the SME will see internationalization from a different perspective in this situation. This type of internationalization has a completely different impact on the SME and the region in which it operates. An influx of managers, exchanges of information, and even exchanges of technicians and other personnel have a direct impact on internationalization of the region.

The common theme of both cooperation and internationalization among SMEs in Northern Europe is the need for information combined with development of managerial knowledge and skills. The information and knowledge sought by managers of SMEs is relatively specialized, not necessarily because of isolationism, but because of limited mobility of managers, scientists, and other needed specialists. There may be another reason why these SMEs are different: because there is a stigma between the North and the South. Managers and other personnel that have been trained “up north” frequently migrate south. Few of their counterparts trained “down south” seek employment “up north” (Laukkanen 2000).

Consequently, much of the information and managerial knowledge needed by SMEs in geographically remote areas of Northern Europe is generated locally by academics, university researchers, management consultants, or other economic or social development specialists. Regional universities and institutions of learning provide services to SMEs and train their managers. SMEs in these regions are dependent on managerial assistance and technical advice from regional universities. Local and national administrative agencies concerned with economic and regional development encourage close cooperation between the two entities.

The objective of this publication is to highlight how SMEs are motivated to cooperate and internationalize in remote regions of Northern Europe. The efforts to motivate SMEs in remote regions of Northern Europe require special approaches to research, frequently multidisciplinary in nature, and using nonconventional methodologies. Most of all, there is a need for trust and cooperation from managers who manage these entities. In addition, not all academics and researchers are able to conduct research among such SMEs. Conducting research among such SMEs requires an open two-way communication channel—every research project must include exchange of useful information between managers and the researchers.

Universities and SMEs in Northern Europe

Universities in Northern Europe, especially in the Nordic countries, traditionally have had a purpose: to assist with economic and social development of the region in which they were established. Universities and special faculties were founded just for that purpose. Academics and university researchers were expected to work closely with SMEs in their region and help them meet strategic and operational challenges. In return university staff had an open communication channel with SMEs’ managers to learn more about them by conducting research studies, writing research cases about their strategies and operations, and occasionally writing masters or doctoral theses. The university staff generate a necessary knowledge to help SMEs in the region to be established and grow.

Some universities cover vast geographic areas with scattered small towns, communities, and an occasional administrative center. Universities are expected to stimulate knowledge and foster innovation and entrepreneurship. Local and regional administrators seek employment opportunities for residents, strive to economically and socially stabilize localities, and generate additional tax revenues. They seek real partnerships with academics and university researchers, management specialists, and academic entrepreneurs to accomplish their objectives. Cooperation among administrators, university staff, and managers is expected to stimulate growth of more SMEs, support SMEs to develop effective and efficient management systems, and expand beyond their regions, both domestically and internationally (Nilsson 2006).

Universities and faculties were founded with different specializations depending on resources in the region such as agriculture, forestry, mines, or fisheries. Sometimes technical universities were founded to develop supporting industries such as manufacturing of agricultural or forestry equipment. In Northern Sweden, for example, technical, agricultural, and comprehensive universities were founded—in Umeå a comprehensive university was founded with an emphasis on medicine and social sciences followed by a separate agricultural university. The social science faculty had a strong focus on economics and business administration. Similar situations can be found across the Bay of Bothnia in Northern Finland—comprehensive universities in Oulu and Vaasa. Norway also located some universities in Northern rural areas such as the Norwegian Technical University in Ålesund and Trondheim. Denmark and Iceland also founded universities in socially and economically important regions. The Northern regions are also serviced by smaller academic institutions, sometimes referred to as colleges, specializing in local educational needs.

The long tradition of symbiotic relationships between academics and SME managers is a two-way street. Managers learn from academics and academics learn from managers. Most of the challenges managers face are resolved with the help of information that is often supplied by academics. Managers of SMEs operating in remote regions of the north outside of major population centers need specialized information that is relevant to their strategies and day to day operations. Because they face complexities related to their communication needs, transportation challenges, and even service of their equipment, they frequently feel that information generated among larger population centers and industrial regions seems superfluous or irrelevant. They perceive the rural environment in which they operate as unique.

When major disturbances occur, such as foreign competitors entering their remote geographic area and beginning to buy up local competitors, suppliers, or enterprises next door, the SMEs become concerned. Introduction of the Internet created substantial changes in strategic and operational strategies that SMEs in many parts of Northern Europe did not expect. Academics who served as management consultants, management advisors, or mentors to top management explained such developments and helped SMEs managers internalize them. Academics at regional universities perform an important role in transferring knowledge gained from their research to local SMEs. SMEs would find it difficult to function without this knowledge.

Management Research in Northern Europe

Much management research conducted among SMEs in Northern Europe is qualitative. Management researchers focus on a small number of subjects, gather data through in-depth interviews, listen to anecdotes, stories, or explanations and later systematically analyze their content. Some researchers rely on observation research: they shadow managers, spend time in their offices, or simply observe their activities. These research approaches are very much based in the social sciences and generate information useful for providing guidance to SMEs’ managers. These study results are published in monographs, journal articles, and doctoral dissertations and contribute to an understanding of how SMEs are managed and operate.

Both point in time and longitudinal research studies are conducted. Some longitudinal studies are conducted as participatory research. Researchers sometimes serve in managerial positions with SMEs and observe how decisions are made. Over time, these observations are collected and analyzed, resulting in a variety of management publications. Such publications are useful in generating knowledge of how SMEs perform over time and what the major challenges are, and occasionally question management approaches and techniques.

The migration from managerial positions among SMEs and from managerial positions to academia are important. This approach stimulates the exchange of information and knowledge between academics and managers. Migration between academia and SMEs is not exclusive. Academics exchange positions with banking personnel, insurance companies, engineering firms, and other commercial entities and vice versa. These exchanges serve very important roles in generating localized knowledge.

Lately, mostly due to diversified internationally based studies of SMEs, research approaches among management researchers in Northern Europe are gravitating to quantitative studies that provide information comparable and replicable among SME research in other parts of the world. Much of this research is exploratory and descriptive; some research studies are comparative and support results of studies published from other countries in areas of SME management, entrepreneurship, and innovation.

Recently, greater emphasis has been placed on academic research, qualitative and quantitative, focused on cooperation among SMEs in geographically remote areas of Northern Europe and efforts and approaches to internationalization among SMEs. This research is combined with issues leading to industrial cluster formation among SMEs and their expanded efforts to participate in industrial networks, supply chains, and complete value chains across national boundaries.

The following research among SMEs in Northern Europe is presented along with the conceptual framework that characterizes much of the research, mainly in the Nordic countries. Managers of SMEs must change their local orientation, values, and strategies. They need to cooperate with their equals, but remain competitive in their own core markets. Internationalization of their strategies and operation is frequently an extension of cooperative behavior. Cooperation and internationalization among SMEs in Northern Europe requires a great deal of entrepreneurship—managerial and academic.

2. Framework

The socio-economic environment in which Northern European SMEs operate is distinct due to their geographic conditions and extensive support from administrative units and local universities. Regional administrative efforts motivate them to be more competitive in their domestic and international markets. Although Northern European SMEs tend to be more entrepreneurial, innovative, and conscious of their resources, they are smaller in comparison to their counterparts in the rest of Europe and especially in North America. Some are willing to cooperate with other SMEs in their vicinity and respond to international initiatives individually or collectively. Motivating Northern European SMEs to cooperate and internationalize is a notable challenge for administrators, economic and regional development specialists, and academics.

Northern European SMEs are started by individuals with entrepreneurial tendencies just as SMEs in other parts of the world. They have an idea for a product or service and look for markets. Many startups have a short life span; those that find markets often grow and expand. As they become successful and are managed with better knowledge of market opportunities, they become strategic in their marketing abilities. Successful SMEs usually need assistance from other SMEs in geographically remote areas such as Northern Europe. The needed assistance may be cooperating on marketing and sales of products, combining transportation and distribution options, or sharing manufacturing or production capabilities. More advanced cooperative arrangements can lead to combined research and development and engineering. Cooperation is a necessity to survival for some emerging SMEs in geographically remote regions. The one dominant characteristic among Northern European SMEs is their willingness to communicate with each other and share their experiences.

The internationalization process among Northern European SMEs is complex, but important for their growth and expansion. Some SMEs internationalize in the early stages of operation, especially if they offer high technology products or services and establish a strong market presence via the Internet and a dedicated webpage. These SMEs are generally labeled as born global. However, the first attempt for most SMEs to internationalize is through export activities. Some enter the realm of exports on their own initiative while others are asked to offer export options by others—customers, distributors, or wholesalers among other domestic or foreign institutions. Later, SMEs face options to enter other arrangements to expand their international portfolios...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of Figures and Tables
• Preface
• About the Contributors
• 1 Motivating SMEs to Cooperate and Internationalize: A Dynamic Perspective—Introduction
• Part I Entrepreneurial Action
• Part II Managerial Aspects of SMEs
• Part III Industrial Networks Development
• Part IV Internationalization
• Index