SCOPE framework for SMEs: A new theoretical lens for success and internationalization
Introduction
Globalization has resulted in major challenges for small firms across countries and markets (Buckley & Ghauri, 2004; Liñán, Paul, & Fayolle, 2019; Paul, 2015; Paul & Rosado-Serrano, 2019). In this era of internationalization, small and medium-sized enterprises (“SMEs”) are critical for all countries (Peters & Waterman, 1982; Amini, 2004; Radam, Bmimi, & Abdullah, 2008; Pisani, Caldort & Hopma, 2017:; Gancarczyk & Gancarczyk, 2018). Current changes in the global economy contribute to challenges and opportunities for SMEs to face (Dominguez & Mayrhofer, 2017). It is widely acknowledged that small firms substantially contribute to an economy (Macpherson & Holt, 2007). Similarly, they contribute significantly to employment generation (Pavitt and Robson, 1987). By contrast, institutions play an important role in supporting SMEs (Hitt, Li, & Xu, 2016). Nevertheless, SMEs face competition from large local and foreign firms (Rialp & Rialp, 2001). Typical strengths of SMEs include entrepreneurial dynamism, flexibility, efficiency, and quick decision-making while large firms’ have economies of scale, scope, marketing skills, and financial and technological resources. Large firms equipped with more resources have a competitive edge in international markets as they respond faster to trade barriers than SMEs (Beamish, 1990; Paul & Gupta, 2014; Wolf and Pett, 2000).
Researchers hold differing views concerning the strengths and weaknesses of SMEs involved in international business (Paul, Parthasarathy, & Gupta, 2017; Soriano & Dobon, 2009). Cadogan, Diamantopoulos, and Siguaw (2002) found that prior experience, export dependence, and coordinating capabilities are positively related to export market orientation, which in turn influences export performance. By contrast, highlighting the effect of firm size on export activity, Fillion and Pickerill (1990) confirmed that firm size shapes perceptions of trade barriers. Katsikeas and Morgan, (1993) reviewed the main models on the export behavior of firms, identified their structural characteristics, analyzed the key conceptual issues, and called for future research harnessing eclectic contribution grounded in theory building.
Lu and Beamish (2001) analyzed the effects of internationalization on the performance of SMEs and highlighted that to manage the challenges when entering into foreign markets, it is crucial to make an effective strategy by making alliances with local partners who have market knowledge. Typically, Multi- National Enterprises (MNEs) with ample resources and capabilities (such as export departments and knowledge), tend to successfully carry out export activities and could probably overcome difficulties to a greater extent than smaller firms (Ruzzier et al., 2006). SMEs often fail in international business operations, which, in turn, result in financial loss (Ghauri & Kumar, 1989). Taking into account the problems and challenges of SMEs, recent research has examined this issue using firm-level, national level, and international level data (Nordman & Tolstoy, 2014; Dikova, Jaklič, Burger, & Kunčič, 2016; De Araújo Lima, Crema, & Verbano, 2019). However, research gaps remain. First, despite the widespread recognition of the need to achieve competitiveness for SMEs (Bettiol, Di Maria, & Finotto, 2012: O’Dwyer, Gilmore, & Carson, 2009; Knight, 2001: Diamantopoulos, Schlegelmilch, & Katy Tse, 1993), prior research has not resulted in robust frameworks. Second, there is no consensus about what type of strategies are required for the successful internationalization of SMEs. Third, there are contradictory findings of research studies on the relationship between internationalization and performance of SMEs, though most indicate a positive relationship.
The motivation for developing a new framework arises for several reasons. They are: i) Although many researchers have used well-known internationalization and growth models such as Uppsala/Born Global/International New Venture for the analysis of SMEs, it is difficult to apply those models in all situations across industries and countries because of several reasons including data availability and unique features of industry context. ii) A need exists for more adequate reconceptualization of marketing strategy research, action, and practice as well as how they interrelate. Models developed decades ago are not taking into consideration the challenges brought by the forces of globalization on small firms. iii) There is need for a more robust framework as the expanding body of research in entrepreneurship creates the need for new typologies (De Bruin, Brush, & Welter, 2007). The traditional frameworks such as Strength, Weakness, Opportunity, and Threat (SWOT) or Political, Economic, Social, Technological, Environmental, and Legal (PESTEL) frameworks do not offer a set of strategies for firms to succeed, whereas in our new framework we offer 5 strategies for SMEs to compete. iv) In addition, there has been calls for strategy-based new typologies for SMEs to implement and compete in the global market (Jones, Coviello, & Tang, 2011; Paul, Parthasarathy, et al., 2017).
Available internationalization process models have not fully captured the phenomenon of accelerated international growth of firms (Freeman, Hutchings, Lazaris, & Zyngier, 2010; Dominguez & Mayrhofer, 2017), Taking into account this assertion, through this paper, an attempt has been made to fill the research gap based on the awareness of SMEs’ competitiveness that can be achieved by internationalization. First, we conceptualize and propose a new framework titled Strategies to analyze the Challenges, Opportunities, and Problems to succeed in Exporting (“SCOPE”) for SMEs to devise and implement strategies for survival and success. The first letter, S, in SCOPE stands for strategies that are defined in terms of a 5S Pentagon strategic model within the SCOPE framework. The SCOPE framework will provide internationalization guidelines for low-technology SMEs (as the “born global” model already aids high-tech SMEs’ internationalization), which is necessary considering the globalization pressures on SMEs. Second, we shed light on the potential of the new framework for academia and industry, proposing 5 strategies to analyze the problems of SMEs and foster long-term competitiveness. Third, we critically examine the problems and challenges of SMEs based on the established theoretical models. Fourth, we extend the scope of those models to benchmark the process of growth of SMEs, responding to calls for conceptual articles (Laufs & Schwens, 2014; Yadav, 2010).
The remainder of the article is structured as follows: The review of the literature on theoretical models related to the internationalization of SMEs is given in section two. Section three describes our case study’s methodology, focusing on our sample selection, data collection, and analysis. Section four describes the firm’s profile, strategies, challenges faced by each of our sample firms, and develop the SCOPE model. Lastly, section five concludes the article.
Section snippets
Definition of SME, growth, and internationalization
The term “SME” may be broadly defined as a business that maintains certain revenue or a number of employees below a certain level. In the United States, one may not readily identify an SME as SMEs’ qualifications are industry specific. However, in the European Union, an SME is any business with fewer than 250 employees.
The definition of “internationalization” varies in accordance with the observed phenomena (Shen, Puig & Paul, 2017). For instance, Penrose (1959) defined internationalization as
Method
Many researchers have studied factors influencing SMEs’ internationalization (Autio, Sapienza, & Almeida, 2000; Golovko & Valentini, 2011; Harms & Schiele, 2012; Lu & Beamish, 2001; Paul, Parthasarathy, et al., 2017). Moreover, extant literature shows a long-standing assumption that most firms internationalize gradually after gaining domestic expertise and growth (Etemad & Wright, 2003). Rettab and Rao (2009) identified factors that discriminate against the three types of exporters based on the
Firm profile, strategies, and challenges
Firms studied shall be referred to as “Jay,” “S & J,” and “Berro,” respectively. Following Coviello (2006) and Bongalia’s et al. (2007) approaches, each study firm’s profile is discussed in this section, focusing on export challenges and strategies. Table 1, Table 2 summarize these data.
A new framework for SMEs
Even though there are some models such as Uppsala, International New Venture model, Network approach, RBV, Dynamic Capability theory, and institutional theory, researchers have widely used them in different ways in their research. Therefore, a lot of studies published appear to be recycled. To avoid replete research, subject areas such as entrepreneurship, international business, and marketing need new and novel frameworks. Otherwise, researchers would tend to use the same old model or theory
Limitations and directions for future research
The framework proposed in this article is based on three firms. It would have been better if we had developed this framework based on five or six firms. However, considering that researchers have published widely cited papers based on case studies of three firms in premier journals such as the Journal of World Business (Bonaglia et al., 2007), this cannot be considered a serious limitation, though it could be seen as a constraint. For example, Bonaglia et al. (2007) used information and data
Conclusion
It was found that the major barriers for internationalization of small firms include: lack of capital, insufficient information, selection of reliable partners and distributors, lack of negotiating power, insufficient resources, lack of knowledge of foreign markets, little international experience, lack of protection from the government, and demand insufficiency for the products of small firms. These findings corroborate the results of prior research (Kaynak, Ghauri, & Olofsson-Bredenlöw, 1987;
Acknowledgement
Author acknowledges the Summer Research Grant from University of Puerto Rico, to undertake this research.
Dr. Justin Paul is a professor of Ph.D. and MBA programs, University of Puerto Rico, USA and a “Distinguished Scholar” with IIM, India’s premier business school. He is known as an author/co-author of books such as Business Environment (4th ed), International Marketing, Services Marketing, Export-Import Management (2nd edition) by McGraw-Hill & Oxford University Press, respectively. His articles have been downloaded over 550,000 times during the last 5 years. A former faculty member with the
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Dr. Justin Paul is a professor of Ph.D. and MBA programs, University of Puerto Rico, USA and a “Distinguished Scholar” with IIM, India’s premier business school. He is known as an author/co-author of books such as Business Environment (4th ed), International Marketing, Services Marketing, Export-Import Management (2nd edition) by McGraw-Hill & Oxford University Press, respectively. His articles have been downloaded over 550,000 times during the last 5 years. A former faculty member with the University of Washington, Nagoya University, Japan and IIM. Dr. Paul serves as a Senior/Guest/Associate Editor with the International Business Review, Journal of Business research, European Management Journal, Services Industries Journal, Journal of Strategic Marketing, European Bus Review, Journal of Retailing & Consumer Services, Small Bus Economics, Business Ethics: European review, European Journal of International Management, Journal of Promotion Management & International Journal of Emerging Markets. In addition, he has taught full courses at Aarhus University - Denmark, Grenoble Eco le de Management- & Universite De Versailles - France, University - Lithuania, Warsaw - Poland and has conducted research development workshops in countries such as Austria, USA, Spain, Croatia, and China. He has been a program director for training diplomats from different countries and also holds an honorary title - Distinguished Professor of Eminence - at three universities in India. He has been an invited speaker at several institutions such as the University of Chicago, Fudan & UIBE - China, Barcelona and Madrid and has published over 50 research papers in SSCI journals and bestselling case studies with Ivey & Harvard. Dr. Paul introduced the Masstige model and measure for brand management, CPP Model for internationalization of firms, and 7-P Framework for International Marketing. His page is facebook.com/drjustinpaul and website is www.drjustinpaul.com