Unraveling the enigma of internationalization : the case of Thai manufacturing small and medium-sized enterprises

Abstract

Globalization, together with the reduction in trade barriers and development in information and communication technology, provide an opportunity for small and medium-sized enterprises (SMEs) to expand their business into foreign markets. SME internationalization has been widely researched in developed countries but little is known about how and why internationalization takes place in the developing countries and this lack of evidence in the literature provides strong grounds for this study.

This study contributes to a better understanding of the internationalization process of Thai SMEs in the manufacturing sector, focusing especially on a country where few studies on internationalization have been carried out. As internationalization is a complex phenomenon and is strongly influenced by the context in which it takes places, this study is the first to attempt to create a holistic understanding of the internationalization process of SMEs through the integration of various internationalization theories; namely, the stage model, the network approach, the international entrepreneurship approach, and resource-based perspectives. These perspectives examine the awareness, behavior, driving forces, and key factors relevant to SME internationalization. Therefore, the pattern and dimension of internationalization, including the mode of entry, market selection, and source of finance were investigated in this study, as well as the problems and challenges faced by SMEs and the driving forces and key factors influencing the internationalization process.

An interpretivist-constructivist paradigm and qualitative method were employed. Based on nine in-depth interviews with the owners/managers or key executives from the SME manufacturing industry, the study seeks to provide answers to three simple questions: why, when, and how firms begin their cross-border business activities. The results are largely inductive and interpretive and are presented as emerging themes. The findings indicated that interrelated factors influence the internationalization process of Thai SMEs. Various foreign entry speed, low commitment entry mode, and broad market scope determined the pattern of internationalization undertaken. A traditional internationalization pattern was strongly evident, although some SMEs exhibited rapid and a “born-again” global internationalization pattern depending on their managerial capabilities, knowledge and access to information, or because of a change in management. Firms choose their main market without psychic distance reasoning. In other words, they do not choose geographically or culturally close countries as their main markets, but those with high demand and market potential. The findings showed that most of these companies opted for exporting as their preferred choice of foreign entry mode strategy as they were easier to establish, more flexible, required low resource commitments, and involved less risk. Sources of finance for international operations mainly centered on internally generated funds, such as family contributions, as the majority of SMEs were family-owned businesses. The main drivers of internationalization centered on key personnel characteristics and firm-specific factors, such as firm resource and firm competence. The finding clearly shows that while domestic and global forces motivate internationalization, aspects of government policy, the home political situation, and financial access inhibit the process. More importantly, the findings suggested that networking relationships, production capabilities, and domestic market conditions are all critical to the international expansion of SMEs.

The increasing emphasis on the SME sector for enhancing economic and social development in Thailand means that Thailand can make substantial contributions to socio-economic development and to the understanding of how promoting SME internationalization will increase those gains. A more targeted support base regarding SMEs’ needs, strong university-industry collaboration, easily-accessible financial sources, and coordination/integration among supporting agencies would assist with the internationalization of Thai SMEs. A result of this study not only assist Thai government in making more informed decisions when designing their SME-support programs, but also provide new knowledge and important insights to SMEs managers to improve their internationalization efforts.