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Internationalization strategy, firm resources and the survival of SMEs in the export market

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Abstract

Does “born-global” internationalization enhance or threaten a firm’s chances for survival in the export market? Despite the ongoing debate about born-global firms, we know little about what drives their survival in the export market. In particular, different theories yield conflicting predictions regarding whether born-global internationalization is superior or inferior to born-regional internationalization or gradual internationalization. Analyzing a longitudinal data set (from 1997 to 2005) of 1959 newly established Canadian small- and medium-sized enterprises (SMEs), we show that no single strategy is superior per se but that internationalization strategy moderates the relative importance of resources to SMEs’ survival abroad. Although resources are important for the survival of all SMEs, the relative importance of slack resources and innovation resources are most important for born-global firms followed by born-regional firms, and are the least important for gradual internationalizers.

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Notes

  1. While firm size (Amato & Amato, 2007; Chang, Oh, Jung, & Lee, 2012) and productivity (Chakravarthy, 1986; Greenley & Oktemgil, 1998; Mishina et al., 2004) are well-established proxies for slack resources, we note that various proxies have been used in related research to operationalize and specify slack resources, including (1) financial indicators such as the equity/debt ratio (Bergh, 1995) and above average productivity (Mishina et al., 2004); (2) perceptual measures such as perceived performance consequences of budget reduction (Nohria & Gulati, 1996); or (3) firm characteristics such as firm size (Amato & Amato, 2007; Chang et al., 2012) to proxy the level of available, potential or recovery slack resources (Daniel, Lohrke, Fornaciari, & Turner, 2004). Since we draw on objective, secondary panel data, we cannot apply measurements from the category (2) (perceptual measurements). We, however, use an indicator of each of the other categories (1) (productivity) and (3) (firm size) in order to provide a broader perspective on slack resources and to reflect the definition of slack resources as the “cushion of actual or potential resources which allows an organization to adapt successfully to internal pressures for adjustment or to external pressures for change in policy, as well as to initiate changes in practice with respect to the external environment” (Bourgeois, 1981: 30). We decided for those two proxies over other indicators of slack resources (like equity/debt, quick or current ratios) because size and productivity are less likely to be victim to reporting bias in the SME context than, for instance, equity/debt ratios (Fan & Phan, 2007), they are valid and previously established indicators of slack resources (Amato & Amato, 2007; Mishina et al., 2004), and reflect the concept of slack resources by Bourgeois (1981).

  2. Each transaction record in the Exporter Register database includes the firm’s identification number and a product code that is classified under the HS. The HS code is available at the eight-digit level, with the first four digits covering the broadest category. To capture a firm’s innovative resources, we use new product introductions at the four-digit HS level.

  3. These tests assess whether the relative magnitudes for SIZE, INNOVATIONS and PRODUCTIVITY are significantly different among firms that choose different internationalization strategies: BG, BR and GI. In order to compare the relative magnitudes associated with the different strategies we first used GI as the reference category. The significant interaction effects between the strategic choice dummies and the resource variables (Table 4, Models 4–6) show that compared with gradual internationalizers, the effect of SIZE, INNOVATIONS and PRODUCTIVITY on reducing the hazard of exit from exporting is significantly stronger for born-global firms and for born-regionals. In order to check whether the relative effect magnitudes for SIZE, INNOVATIONS and PRODUCTIVITY are also significantly different between born-globals and born-regionals, we replicated this test using BG as the reference category. With this test, we found that, compared with born regionals, the effect of SIZE, INNOVATIONS and PRODUCTIVITY on reducing the hazard of exit from exporting is significantly stronger for born-global firms. Therefore Hypotheses 2–4 receive support.

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Acknowledgements

We thank Marcel Voia, Lynda Khalaf, Klaus Meyer, Shaker Zahra, Peter Liesch, Howard Lin, Shavin Malhotra, Jesse Bull, Anoop Madhok, Rein Peterson and Murtaza Haider for their valuable insights and comments. This paper began as a chapter as Sui’s dissertation, she is grateful for the advice offered by her supervisor Zhihao Yu at Carleton University. The paper has benefited greatly from the comments and suggestions made by JIBS Area Editor Mariko Sakakibara and three anonymous JIBS reviewers. We acknowledge financial support from the Social Sciences and Humanities Research Council of Canada (SIG program), Ryerson University and Ted Rogers School of Management (Internal Grant). Finally, we thank the Canadian Centre for Data Development and Economic Research and the International Trade Division of Statistics Canada for their help and support in working with the Exporter Register Database. This paper represents the views of the authors and does not necessarily reflect the opinion of Statistics Canada.

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  1. Global Management Studies Department, Ted Rogers School of Management, Ryerson University, Ontario, Canada

    Sui Sui

  2. University of Kaiserslautern, Kaiserslautern, Germany

    Matthias Baum

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Accepted by Mariko Sakakibara, Area Editor, 6 February 2014. This paper has been with the authors for five revisions.

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Sui, S., Baum, M. Internationalization strategy, firm resources and the survival of SMEs in the export market. J Int Bus Stud 45, 821–841 (2014). https://doi.org/10.1057/jibs.2014.11

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