Introduction
Acceleration of the globalization process in the world economy (Jormanainen and Koveshnikov
2012; Paul and Gupta
2014) has rekindled the academic and policy interest in international entrepreneurship (IE). The existing research focuses mainly on new ventures from developed economies, primarily using a single theoretical perspective, including IE, international business (IB), or strategic management (SM) (Ramamurti
2004; Zahra
2004; Oviatt and McDougall
2005; Yamakawa et al.
2008; Jones et al.
2011). This paper, however, seeks to contribute to the sparse but growing literature on this subject related to small- and medium-sized enterprises (SMEs) operating in Latin America, a region that is still relatively under-researched (see review by Kiss et al.
2012). Previous literature indicates that the traditional theories of internationalization (such as the process model and the network perspective) may not adequately explain the internationalization process of SMEs (Mudalige et al.
2019). Hence, new empirical research on SME internationalization is needed (e.g., Andersson et al.
2014) to add to existing literature, which is mainly focused on SMEs from developed countries or on emerging markets such as China or Central and Eastern Europe (i.e., transition economies).
We argue that the Latin American region provides a unique and distinctive context for research. Being one of the richest regions compared to other regions in emerging economies and with improved stability as well as prospects of growth, it is increasingly becoming an attractive region for foreign investment from European countries (Malamud
2018). However, significant differences still exist in the region, especially in terms of how the institutional setting is structured. For example, the region can be broadly divided into two groups. The first group is considered to be an “open nationalism” and characterized by a horizontal government structure (such as Brazil, Chile, Peru, and Colombia). The second group can be described as a “closed nationalism,” which relies on a hierarchical structure (such as Ecuador, Venezuela, and Cuba) (Carneiro and Brenes
2014; Malamud
2018).
To this end, a recent work by Rašković et al. (
2020) calls for more “context-sensitive” research in the International Business (IB) field, and as Deng et al. (
2020) suggest, with adopting a geographical relational approach in order to explain the internationalization of firms from specific and distinctive contexts of emerging economies. Firms, in emerging economies, are bounded to their home-country institutional settings, which arise from their “liability of emerginess” (Deng et al.
2020; Elia et al.
2020: p. 5), making them different to their counterparts from developed economies. Moreover, emerging and transition economies exhibit different institutional settings and development as there exists significant variety among these economies in terms of culture, history, and pathways to transformation (Chavance
2008). For example, Cuervo-Cazurra and Dau (
2009: p. 481) suggest that the behavior of organizations from developing economies differ significantly to firms from transition economies because “the creation of capitalist system in transition economies” such as the creation of private enterprises resulted in a particular behavior. Hence, it has been suggested that when researching firms’ internationalization from emerging economies, there is a need to understand the “spatial contexts” (Xu and Meyer
2013; Deng et al.
2020).
It has been suggested that the institutional environment and country-level differences may impact the international expansion of SMEs negatively, especially firms operating in emerging markets (Cuervo-Cazurra et al.
2017). Emerging economies may experience more fluctuations and regular changes in their institutions than developed economies. As a result, emerging economies have experienced increasing institutional development and evolution (e.g., Luo and Wang
2012; Brenes et al.
2018). In particular, our paper focuses on SMEs from Latin America for the following reasons. First, as existing research suggests, “emerging economies comprise a diverse range of countries in terms of both geography and level of development” (Kiss et al.
2012: p. 269), making this region a fruitful area of research. To elaborate this further, for example, the pro-market reforms “resulted in a deep transformation of the economy,” which required the disassembling of state ownership and the creation of private enterprises (Cuervo-Cazurra and Dau
2009: p. 506). This process has started in the mid-1970s in Chile, in the early 1980s in China and in the late 1980s in Eastern European countries. Importantly, Chile is considered to be the first country to undertake market reforms in order to deal with economic crises. Thereafter, in the late 1980s, and early 1990s, other Latin American, Asian, and African countries started to apply similar reforms (Bruton
1998). Hence, studies based on regions’ or country’s development levels may be difficult to generalize (Kiss et al.
2012; Montocelli et al.
2017). Moreover, it has been argued that although similarities between emerging and transition economies exist, ignoring the context of these economies may lead to false assumptions and interpretations (c.f. Kostova and Hult
2016, for the comparison between transition and emerging economies).
Second, existing studies examining SMEs from emerging economies have mainly focused on the Asia-Pacific region (e.g., Zhang et al.
2017), or on transitional economies in Europe (Kiss et al.
2012). In contrast, Latin American countries have received little, but growing attention, with most research focusing on Brazil (the largest country in South America) (Azzi da Silva and da Rocha
2001; Ciravegna et al.
2014). Following the geographical relational approach proposed by Deng et al. (
2020), we suggest that the geographical context of firms’ internationalization does matter when investigating the internationalization process of firms from emerging economies. More specifically, we argue that countries such as Chile, Colombia, and Peru are also of great importance (Cyrino et al.
2010; Bianchi and Wickramasekera
2016), since their economies are also characterized by market liberalization, which depends to a great extent on entrepreneurship and private initiatives. Firms in emerging economies are “embedded in the context of social and institutional relations” (Deng et al.
2020: 59), and therefore contextuality, which implies that “economic agents are situated in contexts of social and institutional relations” (Bathelt and Gluckler
2003: p. 128), is of a great research importance. Along with other researchers (Chavance
2008; Kiss et al.
2012; Deng et al.
2020), we argue that the geographical context is important when studying firms’ internationalization in emerging markets, and by doing so it can provide new evidence (possibly more refined) that can enable policy makers to craft enterprise policies to stimulate economic growth and sustain economic development in these economies (see Filatotchev et al.
2009; Mourougane
2012; Bianchi and Wickramasekera
2016)
Although countries in Central and Eastern Europe are moving towards a market economy, these economies actually transitioned from different “starting points and at a varying rates” (Kiss et al.
2012: p. 56). In Latin America, similar heterogeneity of these emerging economies can also be observed. For example, although Chile and Peru received similar institutional changes because of their increasing involvement in international trade agreements (Pino et al.
2019), where a high percentage of their exports originates from natural resources (Brache and Flezensztein
2019), Chile is being perceived as the most open economy in the Latin American region due to the formation of liberal policies to foster free international trade. Moreover, politically, the region is becoming “polarized insofar” as some countries are becoming democratic and others are not. For instance, Chile, Colombia, and Peru represent free market economies while Ecuador, Argentina, and Venezuela tend to show economic protectionism; hence, the former countries are growing faster than the latter ones (Carneiro and Brenes
2014: p. 832). It is therefore interesting from an academic and a policy perspective to examine how quickly firms in these regions are expanding to international markets (Bianchi and Wickramasekera
2016).
Moreover, the internationalization process of enterprises from emerging economies has challenged existing theories and assumptions about internationalization (see Hong et al.
2015). One may argue that SMEs “are not just small variants on large MNEs” (Knight and Liesch
2016: p. 95) as they are structured in a different way and behave differently from each other. For instance, although SMEs are restricted by resource constraints (i.e., the “liability of smallness”) and they do not possess the appropriate advantages such as technological capabilities and a strong brand name (Buckley et al.
2007), they are still capable of conducting international business activities (Puthusserry et al.
2020). It has been suggested that MNEs’ competencies arise from the level of control through ownership whereas SMEs’ competitive advantages lay on the flexibility they offer and their ability to respond to changes in the surrounding environment (Lu and Beamish
2001).
Also, SMEs operating in under-developed institutional environments may face additional challenges than their counterparts in developing countries. For example, it has been found that firms in Latin America may rely more on their personal networks since there is low trust in the efficiency of their legal system (see, for example, Ciravegna et al.
2014). Although similar findings come from other emerging economies (Estrin and Prevezer
2011), there exists differences among them due to cultural differences and individuals’ attitude and perceptions (Amoros and Bosma
2014). For example, Chinese SMEs tend to rely heavily on their government when seeking international business opportunities, since political ties matter more than personal ties in China (Zhang et al.
2016).
Moreover, studies on the factors that affect SMEs’ internationalization for firms in Latin America show that in Chile, for example, the internationalization is prompted by participations in export committees, while the internationalization process of firms from the whole region appears to be a planned process with the firms to be “more likely to be born regional than born global” (Lopez et al.
2009; Kiss et al.
2012: p. 274). However, the internationalization speed for firms from a transition economy such as the Czech Republic, for example, is motivated by a shared language and diverse geographical networks. It should be mentioned that findings regarding firm’s level resources on the internationalization speed for firms in emerging economies are mixed. For example, Wood et al. (
2011) find that there is no association between entrepreneurs’ foreign education and the internationalization speed for firms in India, China, Mexico, and South Africa. However, previous international work experience is found to have a positive effect on the speed of internationalization, which is contrary to findings from Poland (Nowiński and Rialp
2013) and Vietnam (Thai and Chong
2008).
Firms’ resources and capabilities in emerging markets, such as Latin America and China, are derived from managerial assets and redevelopment of resources (Luo
2003; Brenes et al.
2014), while the country-specific resources are derived from its institutional environment (Elango and Pattnaik
2007). It can be therefore argued that the internationalization process of SMEs from these regions may be based on a combination of home country–specific resources and firm-specific resources. It has been suggested that firms’ internationalization is generally a result of a combination of macro-level institutions and firms’ specific resources (micro-level) (Deng et al.
2018). Recently, Deng and Zhang (
2018) argue that research that focuses on macro-level factors only may provide an unclear picture of how the internal factors of SMEs may either assist or constraint their internationalization prospect. Their results show that different firm-specific resources (e.g., manager’s experience) play a significant role in SME internationalization from China, while a low quality of home-country institutions encourages firms to internationalize. Hence, our aim in this paper is to extend our knowledge by determining whether or not such findings are also apparent in Latin American economies. To do this, we empirically examine whether the quality of home-country institutions affects the internationalization speed of SMEs in Latin America, and whether previous international/business experience of the decision-maker accelerates the internationalization process.
To this end, we aim to build on existing literature on the emergence of an institution-based view of strategy in combination with the resource-based view to investigate their link to internationalization speed. The increased use of the institution-based view as an influential tool calls for more research in order to examine the complex and frequent changes in the firm-environment relationship in emerging markets (Gao et al.
2010). According to Wang et al. (
2012: p. 657), these two theoretical perspectives are complementary to each other, although the factors associated with each perspective are often “competing.” Hence, this integrative mechanism is specifically suitable for examining firms’ expansion from emerging markets. Using the institutional theory and the resource-based view theory jointly, we are able to contribute to existing and current literature (e.g., Peng
2003; Wang et al.
2012) by providing new empirical insights regarding how these two country-specific resources and firm-specific resources can affect the internationalization speed of SMEs in Latin America.
Specifically, our research considers three Latin American economies, that is, Chile, Colombia and Peru. Previous research shows that SMEs operating in business environment with limited domestic market tend to expand their businesses aboard (Javalgi et al.
2011), and emphasize the role of institutions in export performance, specifically for small firms (e.g., Ketkar and Acs
2013). It has been suggested that “Latin American economies” may not be treated as a “homogeneous group” (Bianchi et al.
2018: p. 202) since a number of differences exists among them (Acquaah
2007). For example, according to the Global Competitiveness Report (GCR
2017), Chile is ranked 33, and although it has a small market size, it is considered the most open economy in the region (Bianchi et al.
2018). Colombia and Peru, on the other hand, are ranked 66 and 72, respectively (GCR
2017).
1 The general business environment for entrepreneurs in this region is still considered to be the main challenge. Firms in these countries, similar to those from other emerging markets, have to overcome a significant number of barriers to increase their competitive advantage because of, for example, the undeveloped infrastructure, limited supply of trained employees, and the instability of the economic and political factors in the region (Brenes and Haar
2012).
Although previous research has increased our knowledge on SME internationalization processes, there is still limited knowledge regarding the role of institutions on firms’ internationalization speed in emerging economies (e.g., Yamakawa et al.
2013). In particular, IE research introduced the concept and measurement of internationalization speed, defined as the time passed between the year of foundation of the firm and the year of its first foreign sales (Zahra and George
2002). However, we still need to better understand internationalization speed, both conceptually (Casillas and Acedo
2013; Chetty et al.
2014) and empirically (Casillas and Moreno-Menéndez
2014).
For example, Laufs and Schwens (
2014) suggest that there is a gap in the literature with respect to the role of institutional environment in affecting SME entry mode decisions. In addition, Zhang et al. (
2017) have recently argued that research on entrepreneurship in the international context has ignored the role of institutional environment. We therefore directly respond to the call for further research about the effect of firms’ home country on the speed of internationalization (e.g., Laufs and Schwens
2014; Hitt et al.
2016; Knight and Liesch
2016), since research findings from developed economies are not necessarily transferable to emerging economies (Zander et al.
2015). We also respond to the call from a number of scholars for more research that can add to our knowledge and understanding of SMEs from emerging markets, especially from Latin America (e.g., Cardoza et al.
2016).
In this paper, we add to the existing literature that explores the role of the home country’s institutional context as a provider of incentives for SMEs to accelerate their readiness for international markets (see Casillas and Acedo
2013; Casillas and Moreno-Menéndez
2014; Hilmersson and Johanson
2016). Most of the existing empirical research focuses mainly either on large MNEs from developed economies (e.g., Arregle et al.
2013) or from emerging economies like China (e.g., Sun et al.
2015) overlooking contexts where SMEs prevail (Kiss et al.
2012) and institutional voids—the lack of institutions to foster market development—are ubiquitous (Doh et al.
2017; Gil-Barragan and López-Sánchez
2021). We argue that internationalization can help SMEs to improve their competitiveness and strategic position and to build resilience to withstand economic shocks which threaten their growth and lifespan prospects (see Herrera Bernal et al.
2002; Ferreira and Saridakis
2017).
By carrying out a survey in three Latin American Pacific Rim countries (Chile, Colombia, and Peru) and using a multi-step protocol (Dillman
2007), we empirically examine how home country institutions influence the internationalization speed of Latin American Pacific Rim SMEs. In our specification, we also control for human capital through managerial experience, since this may affect the relationship between home market institutions and internationalization speed. For example, it has recently been argued that economic freedom (EF) affects human capital investment (see Feldmann
2017). In addition, our model allows prior business/international experience to be moderated by firm size. Finally, we further control for industry and location. Our paper updates previous important but limited research focusing on emerging economies (e.g., Wright et al.
2005; da Rocha et al.
2012; Ciravegna et al.
2014; Bianchi et al.
2017; Nuhu et al.
2021) and contributes towards our understanding of the internationalization process of the SMEs in these countries.
Overall, our results show that the speed of internationalization accelerates when the SME’s home country has strong market institutions, because they create incentives to develop firm resources that allow them to internationalize earlier. Hence, we contribute to the empirical advancement of IE literature by examining an under-researched set of countries (Cuervo-Cazurra and Dau
2009), adding variability in home country institutional contexts and adopting a micro-econometric approach to understand the speed of SME internationalization over time. Secondly, we find that prior business/international experience increases the likelihood of internationalization. It can be argued, for example, that more experienced management teams are more likely to translate their knowledge and skills into faster international market entry. Finally, we suggest that prior business/international experience pays off only for larger sized SMEs, in contrast to smaller ones. This is due to likely complementarities between managerial resources and physical, financial, and organizational resources. Therefore, we also reconcile different theoretical propositions on the effect of managerial experience and size on SME internationalization (see also Arte
2017). For example, previous business/international experience allow firms to overcome the liability of foreignness associated with internationalization.
Our results have important implications for SME owner-managers and policy-makers in emerging markets. Firstly, our results show that not all components of economic freedom affect the speed of internationalization in the same way. In particular, government size and regulation are found to significantly reduce the time between inception and internationalization activity, whereas access to sound money, which captures macroeconomic and price stability, decelerates internationalization speed. Secondly, previous managerial and internationalization experience are more likely to be associated with faster international market entry, especially for larger sized SMEs. Participating in internationalization programs and forming collaborations with internationally experienced SMEs may help the latter to climb the internationalization ladder faster and expand their operations to foreign markets.
The paper is organized as follows. Firstly, we provide a brief overview of the literature and derive our hypotheses. Secondly, we describe the sampling approach and the survey data used. Thirdly, we explain the data, measures of the key variables, and methodology. Fourthly, we present our conceptual and empirical models. Fifthly, we present the estimation results. In the final section, we discuss the results, followed by a summary and recommendations for further research.
Discussion
This paper directly responds to a call for more research on internationalization of SMEs from emerging markets (e.g., Coviello and Jones
2004; Coviello
2006; Autio et al.
2011; Bianchi et al.
2017). Drawing on the institutional theory (home country–specific resources) and the resource-based view (firm-specific resources), this paper contributes to the understanding of how home country institutions and developing entrepreneurial capabilities in SMEs, such as previous business/international experience, contribute to SME internationalization speed in Latin America. It has been suggested that in this region, firms’ specific resources are originated from the managerial assets, while country-specific resources are originated from its institutional environment. Therefore, we use these theories jointly in order to understand how the level of economic of freedom, and owner-managers’ previous business/international experience and the size of the firm, can affect the internationalization speed of SMEs in emerging markets.
This paper has empirically examined the effect of economic freedom, business/international experience, and firm size on the speed of internationalization for SMEs in three Latin American countries—Chile, Colombia, and Peru. Firstly, the results suggest that only some areas of EF might speed up internationalization, providing partial support for
Hypothesis 1. In particular, the results show that improvements in government size and regulations increase SMEs’ internationalization speed. This in the line with existing research that has advocated the importance of home country institutions for internationalization behavior (Sol Patricio and Kogan
2007; Gao et al.
2010). For example, Gao et al. (
2010) finds that home country institutions in the form of free market mechanism development are strongly associated with the propensity to export and exporting intensity. Hence, their conclusion is that improvements in institutional environment provide supporting environment for exporting SMEs. In addition, it is widely assumed that the level of market freedom in the home country of firms can affect the internationalization decision and the timing to internationalize (Dickson et al.
2013). The premise of such an assumption is that since SMEs have limited resources, a lower level of economic burden placed by the government will allow the firm to exploit internationalization opportunities. However, existing research has also drawn attention to the fact that home country institutions may affect smaller firms differently from how they affect large firms; likewise, home country institutional variations seem to make a notable difference, particularly to small and large firms (Shinkle and Kriauciunas
2010; Deng and Zhang
2018). Larger firms lie beyond the scope of this study, but future international entrepreneurship and strategy research should examine the role of institutions in larger sized firm than those studied here.
Secondly, we find that owner-managers’ business/international experience reduces the time between start-up and the occurrence of internationalization. Our results are consistent with previous literature (e.g., Javalgi and Todd
2011; Cui et al.
2013), indicating that the experience and knowledge of the owner-manager affect the internationalization speed (e.g., Casillas et al.
2010). Therefore, our paper provides empirical evidence for SMEs in Latin America which support previous research that stresses the importance of business/international experience in internationalization. Moreover, it has been found in previous research that internationally oriented owner-managers of small firms tend to have a positive attitude towards internationalization and, more specifically, exporting, due to the fact that they have the appropriate experience in dealing with international markets (Nummela et al.
2004). Therefore, it can be argued that internationally experienced entrepreneurs have been socialized abroad and have likely adopted an entrepreneurial mind-set molded by other countries’ institutional frameworks. Moreover, when a firm follows an international growth strategy at high speed, the firm will more likely gain advantages from the foreign market (Grant
2010). Therefore, the firm will gain access to resources and greater opportunities over its competitors. By following this behavior, the firm will gain positive economic profits and the economies of scale will be reached more quickly, therefore enhancing firm performance.
Moreover, international experience may allow firms to develop a set of skills and knowledge useful of internationalization. More specifically, international experience may improve the firms’ abilities to overcome the liability of foreignness and reduce the cost and time associated with internationalization (Barkema et al.
1996). It has been suggested that prior international experience derived from operating in other countries will allow SMEs to adapt to the host country specification, such as customers’ demands and legal rules. Hence, the experiential learning associated with international experience may allow for rapid internationalization. Our results are in line with RBV-based studies highlighting the importance of top managers’ international experience as a source of firm-specific and tacit knowledge which affects firms’ internationalization (Barney et al.
2001). Research on entrepreneurship in general has highlighted that entrepreneurs learn from their experience and are more likely to be able to exploit new opportunities in general and internationalization opportunities in particular (Musteen et al.
2010). This is also in the line with the international entrepreneurial capabilities (IECs), which implies that firm’s previous international experience allows the firm to exploit resources internationally (Teece
2016).
However, when prior business/international experience is interacted with firm size, we observe that prior business/international experience increases the time to internationalize for smaller firms compared to larger sized SMEs. In other words, prior experience pays off in larger sized SMEs more than in smaller ones. These results are in line with previous literature indicating that “larger firms are more likely to have teams with international selling experience” (Reuber and Fischer
1997: p. 818). Hence,
Hypothesis 2 is only partly supported, while we find empirical support for Hypothesis 3.
In conclusion, our paper makes the following contributions to the IE, IB, and strategy research. Firstly, we directly respond to the call regarding research on SMEs from Latin American region, a relatively under-researched region with most of the existing research focusing on Mexico and Brazil (e.g., Coviello and Jones
2004; Coviello
2006; Autio et al.
2011; Cardoza et al.
2016; Bianchi et al.
2017). By doing so, we are able to contribute to the literature by providing more insight regarding emerging markets’ SME internationalization, considering the geographical context of emerging economies in which these firms operate. The results of this paper will enable policy-makers to create appropriate policies to stimulate economic growth and gain economic development in these emerging markets. Secondly, we contribute to the existing literature by filling the gap regarding the role of institutional environment in emerging economies on the speed of internationalization, a gap that exists in the current literature (e.g., Laufs and Schwens
2014; Hitt et al.
2016; Knight and Liesch
2016) since findings from developed economies do not apply to emerging markets. Finally, we have empirically examined the size of the firm as a moderator for the relationship between business/international experience and internationalization speed. Our results have shown that experience pays off only for larger sized SMEs. By doing so, we contribute to the current literature by shedding light on the effect of firm size as a moderator in the business/international experience-internationalization nexus.
While previous studies on developed countries focused on the exploitation of how firm-specific resources assist firms to internationalize (Buckley and Casson
1976), emerging market SMEs differ significantly from their counterparts in the West and although transition and emerging economies are generally assumed to share some institutional similarities (e.g., related to Soviet style government), there exists significant differences in these countries (Chavance
2008). The unique characteristics of enterprises from emerging economies prompt the need for new understanding of the sources of competitive advantages that enable firms to internationalize. By overcoming trade barriers, in which technological progress and communication infrastructure have contributed to, emerging economies have been increasingly attracting a significant share of FDI. This has contributed positively to economic growth and innovation (Cardona et al.
2013; Abubakar et al.
2019).
In this paper, it has been argued along with existing research that geographical context plays a significant role in studying firms’ internationalization (Deng et al.
2020). Specifically, although previous literature has acknowledged that home-country institutions assist firms’ international activates (Wang et al.
2012), knowledge on how and under what institutional circumstances such effect occur is limited (Hong et al.
2015). Therefore, our study contributes to previous literature by extending the institutional theory and the RBV, in international business context for SMEs in Latin American region, and stimulates further theoretical and empirical research in this area of research and economies.
Conclusion
During the past few years, “emerging market economies, including several countries in Latin America, are regarded as new engines of economic growth” (Martin and Javalgi
2016: p. 2040). Also, firms in Latin America have proven that they are equal to their counterparts in other regions in terms of business innovation and entrepreneurship, playing a critical role in investment and trade internationally.
Despite the growing attention from academics to firms from Latin America, the majority of previous studies have concentrated on multinational corporations (e.g., Luo and Tung
2007; Ciravegna et al.
2014), while SMEs from this region have received less research attention. This limited stream of existing research has focused on very specific aspects such as the growth, survival, and development of small firms in Latin American’s region or the barriers that affect entrepreneurial activities (e.g., Swaminathan
1996; West et al.
2008). Hence, there is an incomplete knowledge regarding SMEs from this region (Cardoza et al.
2016) that can lead to weaker regulations, under-developed public policies, and low level of firms’ competences to overcome challenges for expansions (West et al.
2008; Cardoza et al.
2016). To this end, more research regarding SMEs in this region is needed in order to fill in the gaps in previous literature.
In addition, there has been growing attention to the internationalization of SMEs. More specifically, an increasing number of SMEs from emerging economies are expanding their businesses abroad (Aulakh et al.
2000) generating economic growth and creating jobs in emerging markets (Bianchi et al.
2017). Hence, academics and government increasingly recognize the importance of gaining better understanding of the internationalization process for SMEs from emerging markets. However, previous studies have mainly focused on large firm from developed countries (Olejnik and Swoboda
2012) and less attention has been paid to SMEs from emerging markets (Bianchi and Wickramasekera
2016) and in particular to SMEs in Latin American region (Bianchi et al.
2017). Moreover, despite the growing importance of emerging economies and the important role played by the entrepreneur in advancing the economy and its growth, our undersetting of IE in emerging economies is still limited (Kiss et al.
2012). For example, it has been suggested that the existing strategy of “market liberalization” in Latin America depends to a great extent on entrepreneurship, and thus, a better understanding of the internationalization process of firms in this region is essential in order to enable their international expansion (Filatotchev et al.
2009; Felzenszetein and Fuerst
2018). However, although firms from this region are growing, they still face significant barriers. For example, it has been suggested that SMEs in Latin America still exhibit a low level of internationalization compared to their European counterparts, face significant challenges from the increased international competition (especially from Chinese firms), and are unable to benefit from global value chains (Chan et al.
2008; ECLAC
2013).
10
Therefore, in this paper, we examine the role of EF, prior business/international experience, and firm size on speed of internationalization in Latin American Pacific Rim SMEs, controlling for industry and location. Given the important role played by the entrepreneur during the internationalization process, especially in the resource-constrained environments that characterize emerging economies, it is essential to understand how the unique external environment shapes firms’ plans and further affects their internationalization speed. We explore this issue by drawing on the home country–specific resources, in the form of the home country institutions, and the firm-specific resources in the form of previous business/international experience and firm size on the internationalization speed for SMEs from emerging economies. We focus on understanding how these factors affect SMEs to peruse early and accelerated process of internationalization (Oviatt and McDougall
1994; Knight and Kim
2009) instead of the traditional patterns of internationalization theories dominating IB literature. Hence, our paper contributes to the IE literature by providing important insights into IE phenomena in a much broader range of institutional contexts than have been examined to date (Kiss et al.
2012).
The study finds that some home country institutional drivers can explain internationalization speed; specifically, it is found that government size and regulation accelerate the internationalization process. However, not all areas of EF are found to be adequate for the promotion of IE. Therefore, we argue that public programs or agencies should provide entrepreneurs with the means to help them rapidly scale up their business, and this involves using existing institutions. In addition, it has been indicated by Bianchi and Wickramasekera (
2016) that companies in the Latin American region require assistance to commit to internationalization. The most important factor which appears to be helpful is to provide training for owner-managers of small firms through government agencies. Policy-makers in these regions should therefore recognize the need to establish different kinds of public agency and programs which aim to help owner-managers of small firms to expand their businesses abroad.
Moreover, although previous studies highlighted the role of international experience (Dikova et al.
2010; Clarke et al.
2013) as an important factor in relation to the effects and outcomes of internationalization, its role in determining the internationalization speed of firms remains underexplored (Mohr and Batsakis
2014). We fill in the gap in the literature. We have examined the relationship between prior business/international experience and SMEs’ internationalization speed for SMEs in an emerging market. We find that prior experience can accelerate internationalization, but this pays off only for larger sized SMEs, in contrast to those that are smaller. We suggest that existing SMEs with a minimum size should be connected to internationally experienced entrepreneurs (e.g., by inviting them to become part of their boards of directors) who can assist these firms in speeding up their internationalization. For example, the Chilean export promotion agency PROCHILE launched a Programme for International Entrepreneurs in 2014. This program might serve as a reference model for similar IE support programs to be developed in other Latin American countries. This is important due to the rising relevance of international entrepreneurs in economic growth and the distinct behavior of internationalizing SMEs compared to more established large and multinational corporations. We therefore suggest that owner-managers of smaller sized firms that do not possess the required international experience to expand their business abroad participate in such programs and seek advice and assistance from internationally experienced entrepreneurs.
In spite of its important implications, this study is not without limitations. Firstly, the sample size limits the predictive power of our econometric models. Specifically, having obtained responses mainly from firms from the more liberalized economies (Chile, Colombia, and Peru), this did not allow us to compare them with international entrepreneurs from much less liberalized countries (e.g., Argentina, Bolivia, Ecuador, and Venezuela). Finer-grained differences across the more liberal countries are, of course, more difficult to detect with a small sample. Therefore, future studies can advance this stream of research by sampling a larger pool of SMEs in other, less liberalized, Latin American countries in addition to the countries we have already covered. Furthermore, due to data constraints, this study was not in a position to operationalize the home country market environment considering industry-specific characteristics. Future research might advance this stream of research by considering less aggregated industry-level data. In particular, it would be useful to understand how more specific industry characteristics, such as domestic inter-firm rivalry and domestic buyer bargaining power, among others, affect internationalization speed and international intensity. Also, market growth abroad is likely to influence a firm’s international strategy and, in particular, the decision to internationalize. This is because an income increase in foreign countries can lead to an increase in demand for the products and services provided by key trading partners. Hence, foreign market growth can motivate firms to enter such growing foreign markets more rapidly and thus increase internationalization speed. Future empirical research should investigate the effect of actual measures of industry growth and size on speed of internationalization.
Finally, this study intentionally focused only on the initial internationalization phase. Future research might expand on our approach, considering additional phases of the internationalization process using longitudinal data—in particular, (i) internationalization preparation and (ii) internationalization evolution. Thus, IE research will gradually move towards a more comprehensive picture. Additionally, comparing firm internationalization experience between emerging and developed markets may offer further theoretical and empirical insights. Moreover, although our study has been approached quantitatively due to the nature of the data collection, we encourage further work using a qualitative approach. For example, in-depth interviews with business owners can reveal further insights into the effect that various home institutions can have on internationalization speed.