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26 Feb 2016

The Antecedents of SMEs Internationalisation: Case of Indonesia

Diana Sari, May 2011
Monash University

Abstract
Research on firm internationalisation has tended to focus on Large Enterprises (LEs), with relatively less focus on Small Medium Enterprises (SMEs), despite the importance of SMEs in generating national employment and economic development. In many countries the government has acknowledged SMEs as a key source of domestic income growth and employment creation, most particularly from export activities. Studies on internationalisation of SMEs, however, have been predominantly focused on developed countries. This study therefore is focused on the internationalisation of SMEs from Indonesia, which represents developing countries.

Most studies of exporting SMEs focus on macroeconomic factors such as regulation, infrastructure and programs which assist SME development. On the other hand, management literature has recognised the important roles of senior managers in terms of their management know-how and international business skills as human capital which can influence the export activity of the firm. At the same time, social capital is also recognised a further resource needed for SME internationalisation. Therefore this research will address this gap in order to examine the role of entrepreneur’s human and social capital in internationalisation of the firm.

Further to this, findings on the relationship between firm internationalisation and firm performance are mixed. More specifically, the effect of internationalisation of SMEs on business performance has not been seriously investigated. This study therefore seeks to fill this gap by examining the unique effect of different dimensions of internationalisation on business performance.

Overall, this study has three purposes: the first is to measure company resources (Human and Social Capital) influencing Indonesia’s manufacturing exporting SMEs in their internationalisation process; the second is to examine the effect of human and social capital in relation to three dimensions of internationalisation (international performance, number of markets and time to internationalise); and the third is to assess the effect of the aforementioned internationalisation dimensions on firm financial performance. 

This study used a mixed method combining quantitative and qualitative approaches. The quantitative data was drawn from 241 SMEs’ managers and/or owners who have exporting activities from a total of approximately 3 million SMEs based on the Indonesian government database. The qualitative data was collected through interviews with ten SMEs owner-managers who were participating in the survey.

Using Structural Equation Modelling (SEM) technique, the findings suggest that  Management Know-How have no positive relationship with any dimension of internationalisation, but, interestingly, it has a negative relationship with time for internationalisation; suggesting that it delays the internationalisation of the firms. The findings also show that both International Business Skills and Social Capital skills have a positive relationship with international performance and number of exporting markets, but not with time for internationalisation. With regard to the effect of internationalisation on business performance, the findings show that international performance has no effect on business performance, but the number of export market has a positive relationship with business performance. On the other hand, the time for internalisation has a negative effect on business performance, meaning that the later the SMEs internationalise, the better their performance. Qualitative findings indicate that good networks with competitors, suppliers and government will help a firm to serve the international market successfully.

From theoretical perspectives, the findings support the Resource-Based View theory as international business skills have positive relationships with two dimensions of internationalisation. The findings of this study also support the traditional view of incremental internationalisation advanced by Stage Theory. Consequently, the findings imply that International New Venture Theory, which supports born-global or leap-frog approach in internationalising SMEs, is not appropriate for Indonesian context. Finally, this study also supports the Network Perspective which suggests that the relationships built by firms with other businesses, community leaders, and government have significant effect on internationalisation of SMEs. Overall, this study demonstrates the unique effect of different organisational capitals (i.e. human and social) as key resources for facilitating internationalisation.

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