First contact : the influence of serendipity , planning and antecedent relations in the internationalisation of SMEs

This empirical paper attempts to explain inward and outward internationalisation of small and medium-sized firms (SME) as a function of serendipity, interpersonal links and planning. In order to research this issue, a project with multiple study objects was designed within which the internationalisation processes of eight SMEs were mapped through personal interviews. The results of this study indicate that neither rational planning, interpersonal and interfirm linkages, or serendipity alone, appear to explain the internationalisation of SMEs and that a more dynamic definition of firm strategy is called for. INTRODUCTION The foreign market entry (FME) phase of SMEs’ internationalisation processes has largely been neglected by internationalisation researchers (see Ellis, 2000). As a consequence, little is known about the actual mechanisms at play when SMEs make FME decisions, which are often assumed to depend on chance events or serendipity (see Brush, 1995). Another issue which has largely been ignored in past research is inward internationalisation, i.e. international sourcing (Deng and Wortzel, 1995; Liang and Parkhe, 1997). The purpose of this paper is therefore to shed some light on which factors influence SMEs’ choice of foreign customers, foreign agents and foreign sourcing, i.e. how SMEs meet their foreign business partners. The paper begins with a few short, empirical stories illustrating different internationalisation situations. These stories lead to the formulation of four research questions. A brief review of SME internationalisation research is then conducted to indicate the current state of the art in relation to the research questions, after which we present and discuss the paper’s empirical findings. The paper is concluded with a model identifying twelve different internationalisation situations. Stories of Internationalisation When talking to managers about how they meet their business partners abroad, they all have a lot of anecdotes to share. Some of these concern seemingly chance meetings, like in the case of Chairs Ltd. finding an important supplier in Germany. I’d been working for this firm until 1975, when they suddenly went bust, and what were we going to do? As development engineer I thought it’d be interesting to go down to this trade fair in Cologne, and I walked around there among some 1000 exhibitors for three days and I was about to go home on Friday evening. The fair closed at six. Half past five I found this tiny stall and a firm that I instantly saw would suit me. I didn’t speak any German and he spoke nothing but German, so we did not have much in the way of communication. Anyway, I got a card from him and six months later a guy turned up, an agent for other German firms, and I asked him to help me. We went down there and things got started. they were very important for us when we started the firm. Former CEO and founder of Chairs Ltd. Sometimes, firms seem to have little choice in their market entries, like in the case of Traffic Ltd. entering an international distribution network. Yes, it was [partner firm of parent firm] and [parent firm] that closed a management level agreement. It was [chairman of the board of parent firm] and their boss who’d met, don’t ask me how, and decided that we had a lot of things in common and that we should work together. So they made a top-level deal and then they called together all the people who they thought should know about it and told us that, [chairman of the board of parent firm] said in those words, “I am not asking you to work together, that’s an order”. Perhaps not exactly what you wanted to hear. Marketing Manager at Traffic Ltd. Other stories concern the importance of market research or failed market entries like in the case of Utensils Ltd. trying to increase sales on the German market. Here, take a look at what we’ve done in Germany [respondent shows diagram of sales in Germany]. Here are the numbers for ’95, if you figure in price increases we sell even less today than we did then. First we had a partner, an agent, a guy who used to work for the Swedish Trade council, but that did not work. Then [a consultant] made a partner search, but nothing came of that. Then there was this visit to a new agent in ’96 . and he started at the fall trade fair in ’97 . but that did not work either so we terminated the contract with the agent and then in the spring of ’99 we took in a new agent who was out visiting companies, pushing and so on. But that did not work either so we stopped working with him at the end of last year. And then you can say to yourself “yeah, we’ve got the wrong agent. He’s crap, he’s not selling anything”. But that’s not it, if you’ve tried so many ways and none have succeeded you have to ask yourself, “is there a need for our products in Germany? ” . This is a failure but we’ve learned an awful lot from this. And during this period between ’95 and ’98 we worked in an incredibly structured way with more than 10 binders full of reports from different visits and so on. We could have taken an awful lot of long shots [on other customers] for the money we spent there. Frustrated Marketing Manager at Utensils Ltd. Yet others are concerned with how people use their social networks like in the case of Waste Ltd. entering the US. That’s an interesting story, because he [the US distributor] is a Swede who had a company here in [name of city] and used to be a supplier to us once who made cylinders for many years before this [the US venture] got started in 1984. He had already left Sweden then and was in the US selling pastry . so he started with some Swedish pastry-making machine that they didn’t have over there, anyway that’s the way it was. And then when he saw that that didn’t work out [respondent laughs goodnaturedly] he contacted us, he knew Waste Ltd. of course and [the former CEO], and it’s been down that road ever since. CEO of Waste Ltd. From the above quotes, we can see that there are at least three different types of influences on FME and international sourcing decisions, namely serendipity, interpersonal and interfirm linkages, and rational planning. All of these have in the past been argued by different theoretical approaches and researchers to be of varying importance in internationalisation.