Internationalization Process of Small and Medium-Sized Enterprises: Toward a Hybrid Model of Experiential Learning and Planning

Abstract * This study develops a coherent internationalization process model, which is particularly needed for examining the internationalization of small and medium sized enterprises (SMEs). Based on a review of existing literature and an empirical illustration, this paper proposes a hybrid model that integrates the experiential learning and systematic planning models, and incorporates the contingency perspective. The managerial and scholarly implications of the model are discussed. Key Results * By replicating and extending the empirical analyses in a published article, this study illustrates that US SMEs do not seem to follow a systematic planning process at the early stage of internationalization. * This study develops a hybrid model of internationalization process which is comprised of three major phases: Antecedents, planning, and execution. Introduction The literature shows that there are three broad theoretical perspectives regarding the internationalization process of firms: (1) Experiential learning (Johanson/ Vahlne 1977, Lam/White 1999, Cavusgil 1980, Cavusgil/Zou 1994), (2) Systematic planning (Root 1987, 1994, Miller 1993, Yip/Biscarri/Monti 2000), and (3) Contingency perspective (Welch/Welch 1995, Boter/Holmquist 1996, Coviello/ Munro 1997, etc.). Despite their important contributions, these perspectives have not led to a coherent framework that may help both scholars and practitioners to gain a convergent understanding of the internationalization process of firms. (1) This paper seeks to develop a hybrid model of internationalization process which reconciles different theoretical perspectives, and bears normative implications for managers. In our opinion, the establishment of such a model would be particularly helpful for examining the internationalization process of small and medium-sized enterprises (SMEs) which have played an increasingly important role in the international arena (Fujita 1995, Liesch/Knight 1999, Manolova 2001). (2) There are three major reasons. First, SMEs usually have limited resources to allocate for information and knowledge acquisition pertaining to foreign markets. They cannot afford to undertake a thorough systematic planning process as big firms. Second, SMEs are internationally inexperienced compared to large multinational enterprises (MNEs). They face the problem of "unknown unknowns" (Yip/Biscarri/Monti 2000). Third, today's SMEs initiate their international expansion in a global environment which is substantially different than the one faced by traditional MNEs two or three decades ago. They often have to respond to international market opportunities in a very timely manner. The rest of the paper is organized as follows. We first briefly review and classify the literature on firms' internationalization processes. Next, we conduct an empirical replication and extension of the article of Yip, Biscarri, and Monti (2000). Then, we conceptualize a hybrid model by integrating the experiential learning and systematic planning models, and incorporating the contingency perspective. Subsequently, we discuss the managerial and scholarly implications of our model. Finally, we draw our conclusions. Literature Review: Three Major Perspectives The research on internationalization processes of firms can be traced back to Aharoni (1966), who provided one of the richest descriptions of US foreign investment decision processes as the result of his field study. It is, in fact, one of the earliest studies that abandoned the classic economic rationality, and instead applied the behavioral theory of the firm to foreign direct investment (FDI) research. Perhaps the most influential study on internationalization processes was conducted by Johanson and Vahlne (1977), who drew upon the works of Cyert and March (1963) and Aharoni (1966), and developed a process model best known as "Uppsala model. " Since then, research on internationalization processes has attracted enormous scholarly attention. …