Abstract
This chapter addresses the internationalization case of an ICT (information and communication technology) company in the services sector. After an initial review of the theoretical framework on the internationalization of SMEs, where it is found that the subject is still under-researched, and an analysis of the criteria these companies follow to select markets to be addressed, the case of a company whose internationalization efforts were based on the anticipation of an internal market shock and on the leveraging of serendipitous network connections, with very relevant business impact and financial results, is analyzed. The case study ends with a “what-if” approach, where the taken approach is confronted with a more structured “textbook-like” theoretical scenario of market selection, with significant differences arising from the comparisons made.
TopIntroduction
In a context of economic instability, there is an increasing need for companies to broaden their horizons and expand their business. Over the last decades, there has been an ever-decreasing number of barriers to trade, as well as very significant progress in information and communication technologies.
The combination of these two factors has caused an increasing number of service companies to change their strategies, pursuing internationalization initiatives in order to diversify markets. However, one of the recurrent problems they face is the choice of target markets and the criteria underlying that decision, as well as the alliances they must forge so that they can achieve a sustainable internationalization process.
In this chapter we will revisit the theoretical framework concerning internationalization of service companies and the criteria they follow to select the markets where they start the process. After analyzing the possible strategies to implement this process, a case study of the initial efforts of internationalization of a Portuguese ICT (Information and Communication Technology) SME (Small and Medium Enterprise) is presented and a comparison is made between the choices made and the indications that a theoretical matrix pointed to.
With this background structure, and starting from this introductory section, the following sections are structured as follows:
Firstly, a review of the state of the art is carried out, starting with an analysis of the main theories on the internationalization process and of an analysis of how chance and serendipity play a role in these processes. Afterwards, it is studied the case of internationalization in services and the approaches that can be taken in the selection of the destination markets, namely through the use of a bi-dimensional matrix encompassing risk and opportunities in the destination markets.
Subsequently, a brief presentation of the ICT sector in Portugal is made, followed by a case study of the GAMMA company, starting with the characterization of the context where the company operated at the beginning of the internationalization process, the modus operandi it followed in its internationalization process and the business and financial results achieved.
Using a “what-if” methodology, this approach is then compared with a theoretical approach based on a risk-opportunity matrix that allows the identification of the markets that best fit the nature and the objectives of the organization, based on the concepts previously discussed.
The final section analyzes how literature anticipated (or not) the moves described in the case study and enables a reflection on how intuitive, serendipitous moves in the internationalization process lead to successful results.
Key Terms in this Chapter
Serendipity: Recognizing “chance” opportunities and being ready to take advantage of them, encompassing a temporal, relational, and analytical element.
Born Again Global: Companies that are initially focused on the domestic market and that, as a result of an external shock, change their strategy and focus in international markets.
Psychic Distance: Perceived difference between countries (home and abroad) that is independent of space and time factors and takes mostly into consideration cultural aspects of business.
ICT Services: Information and communication technologies that provide access to information through telecommunications systems.
Market Screening: A process used to evaluate markets according to its compatibility with overall competencies and business objectives of the company.
Joint Ventures: A business arrangement in which two or more parties agree to pool their resources to accomplish a specific task. It is not like a partnership agreement because this has a definite end to it as it focuses on a single project or undertaking.
Uppsala Model: Explains the process of internationalization of companies based on how organizations learn and the impact of learning on the companies’ international expansion. This theory defends that the companies’ internationalization process is carried out in stages, from non-regular exports to the establishment of companies abroad.
Eclectic Paradigm: Is a theory grounded on a three-tiered framework (a comparative advantage, an ownership advantage and an internalization advantage) that analyses, for a given company, if it is beneficial to pursue foreign direct investment. Is based on the assumption that institutions will avoid transactions in the open market when internal transactions carry lower costs.
Cultural Dimensions Theory: Developed in the 1970s by Geert Hofstede, is a framework that describes the effects of a society´s culture on the values of its members, and how these values relate to behavior, using a structure derived from factor analysis.
Network Theory: Analyses the industrial systems through three variables: actors (individuals, firms or groups); activities and resources (physical or intangible). Describes the industrial markets of SMEs as firms’ networks and the basic assumption of this theory rests on the assertion that the actors (firms) are dependent on resources controlled by other parties.