Drivers of success for SME internationalization

As a professor in Entrepreneurship & Family Business, I would like to share with you some insights on the internationalization of SMEs and family businesses. I will give you some ideas on how you can be more successful in going global with your company, based on a recent study in Germany.

The research is written by Kraus, Mitter, Eggers and Stieg, and looks at the drivers of internationalization success in German SMEs. For this purpose, the authors questioned some 200 CEOs and managers of SMEs to find out which factors they believe to be the most important for international success. After studying relevant literature, the authors first look for the most important factors that influence a company’s internationalization success, and then analyze which of these factors actually make the biggest difference.

Strategic success factors

They identify the following 8 factors of which 6 are of a more strategic nature and 2 are more structural:

1. Foreign entry mode (export, strategic alliance, joint venture, subsidiary);
2. Target market (internationalization in close regions (EU) or in more distant regions (Asia));
3. Motives for going international (pushed (reactive) or pulled (proactive) to go international);
4. Degree of internationalization (more or less than 40% of foreign sales);
5. Speed of implementation (internationalization strategy long-term oriented or rapid implementation);
6. Financing (use of equity or debt financing to fund internationalization), family business or not, and age of the firm (older versus younger SMEs).
   
   

Financing

Based on their analyses they find that strategic factors are the most relevant ones for successful internationalization. Of these factors, the one that affects internationalization success the most is ‘financing’. SMEs are perceived to be more successful in their internationalization when their activities abroad are financed with equity rather than debt.

Selection of the right market

Next, we have the factor ‘selection of the right market’. The authors find no clear preference for Europe or Asia, but rather indicate that the firm and its strategy need to be adapted to the new market abroad.

Motives for going international

Thirdly, SMEs with proactive reasons to become active internationally are perceived to be more successful.

Speed of implementation

And finally, the long-term orientation of the internationalization process is also deemed important. Usually, internationalization happens over time, meaning that gradual internationalization is considered more successful.

When looking at these factors, they could be good news for family businesses, since these companies are usually financed with less debt, and are by nature more long-term oriented. So, if you want to make the right decisions on how to internationalize your company, it may be worthwhile taking these factors into consideration.