Inward Internationalization: Important Challenges Among SMEs

Inward Internationalization: Important Challenges Among SMEs

António Carrizo Moreira (University of Aveiro, Portugal), Luis Miguel D. F. Ferreira (Universidade de Coimbra, Portugal) and Pedro Miguel Freitas da Silva (University of Aveiro, Portugal)
DOI: 10.4018/978-1-5225-3543-0.ch012

Abstract

The existing literature on internationalization and purchasing is vast; however, the inward internationalization perspective is an under-researched topic. In this chapter, the authors review the literature on internationalization of small and medium enterprises (SMEs) to understand the main reasons behind international purchasing and the role of experience on internationalization. Using a survey and descriptive statistics, the results from 56 respondents show that SMEs source from a small number of countries and hold those relationships for several years. The main reasons underlying international purchases are lower prices and better product quality, regardless of goods availability on the domestic market. This chapter has some limitations concerning its exploratory nature, pertaining to its sample size. Some future research avenues are presented such as a deeper look on how internationalization processes differ when SMEs begin their activity by inward rather than by outward activities.
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Introduction

The concept of internationalization is comprehensive and has been the subject of extensive analysis, mainly in what pertains to exporting practices, with a strong emphasis on multinational companies. Comparatively, studies on small and medium-sized enterprises (SMEs) are scarcer and have been triggered mainly by researchers from the University of Uppsala (Luostarinen, 1970; Johanson & Wiedersheim-Paul, 1975). Luostarinen (1970) divided the concept of internationalization into: inward; outward; and cooperative.

The focus of this chapter is on inward activities – as outward internationalization has already been overly researched – since they are understood to be the core of the internationalization process. As a result, the role of inward internationalization as a process capable of leading companies to develop their sales in the international markets and supporting internationalization has been neglected. In the last two decades, several studies have been conducted on SMEs internationalization process through exports; however, the relationship between SMEs internationalization and international purchasing activities received limited attention. Ribau, Moreira, and Raposo (2017) refer that research on SMEs internationalization has extensively focused on the outward rather than on the inward perspective, calling for the need of more all-inclusive perspectives to properly understand the consequences for scholars and practitioners. Further studies on inward internationalization are important to this field of knowledge as, on one hand, the success of exports depends on international purchases and, on the other hand, international purchasing can contribute significantly to the firms’ competitive performance and survival (Gualandris, Golini, & Kalchschmidt, 2014; Horn, Scheffler & Schiele, 2014).

Knudsen and Servais (2007) examined the international purchasing behavior of industrial SMEs and the inward-outward link from the purchasing perspective, diagnosing several differences between firms according with each international configuration. This chapter is based on Servais and Knudsen’s research, focusing on SMEs inward activities only. Thus, this study aims to analyze the importance of inward activities in the internationalization process of SMEs, namely, how SMEs use their purchasing budget, the role of experience in the internationalization process and the reasons underlying the choice of international suppliers. Our contribution to the literature stems from offering a deeper understanding on the importance of inward activities to the internationalization process of SMEs, and on what reasons drive them to acquire products in foreign markets. Data were collected using an adaptation of Knudsen and Servais’ (2007) questionnaire, and analyzed using descriptive statistics.

The chapter is structured into four main sections. After this introduction, section two reviews the theoretical background and the literature. Section three discusses the methodological approach, and presents the main results. Finally, section four details on the main conclusions, limitations and future research avenues.

Key Terms in this Chapter

Supplier-Client Relationship: Is a relationship in which one company is involved in a business relationship in the supply chain with other firm, involving the provision of raw materials, components, spare parts, products or services. Normally this type of relationship is celebrated between two firms to abandon adversarial, transaction-based involvements and to embrace partnership-like involvements.

Global Sourcing: Global sourcing occurs when a firm aims to exploit global efficiencies in the delivery of a product or service from the global market for goods and services across worldwide geopolitical boundaries. For that firms need to integrate and coordinate procurement activities across worldwide business units, involving processes, technologies and suppliers. Normally, it involves exploiting global efficiencies in the delivery of a product or service and is often associated with a centralized procurement strategy of a large firm. Firms seeking to deploy global sourcing strategies normally seek to develop close relationships with suppliers emerged in order to develop a competitive advantage through upstream relationships in the value chain.

Outward Internationalization: Outward internationalization activities pertain to internationalization activities in which the firm is the seller in a business exchange situation. It normally involves indirect exports, direct exports, sales branch overseas, license overseas and production activities overseas.

International Purchasing: Purchasing refers to the activities related with the acquisition of goods, raw materials or services necessary for firms to accomplish their business goals. This is referred as international purchasing when those purchasing activities are carried out in international markets to support the firm’s operations and ensure a reliable source of supply. With the economic globalization process one can experience that domestic and international purchasing activities are becoming blurred and are converging in a single function within firms. The main reasons for firms to purchase internationally are the following ones: insufficient domestic capacity; changes in the business environment; lower prices, better quality, better delivery and access better technology.

Small and Medium-sized Enterprises (SMEs): Although there are plenty of definitions across the world, the working definition used in this chapter is the one that was created by the European Commission, to allow a coherent and effective access of SMEs to European community funds.

Inward Internationalization: Inward internationalization activities pertain to internationalization activities in which the firm is the buyer in a business exchange situation. It normally involves indirect imports, direct imports, purchasing office overseas and license in Portugal for overseas firms.

Internationalization: It is normally associated with a strategy carried out by firms that decide operate in foreign markets. It involves the implementation of goods and services that can be easily adapted and adopted in different countries. It could involve business to consumer activities, as well as business to business activities. It may involve cross border transactions of goods, services, or resources between two or more firms or organizations that belong to two different countries, as well as foreign direct investment.

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