1. International Journal of Management (IJM), ISSN
INTERNATIONAL JOURNAL 0976 – MANAGEMENT (IJM)
OF 6502(Print), ISSN 0976 - 6510(Online),
Volume 5, Issue 1, January (2014), © IAEME
ISSN 0976-6502 (Print)
ISSN 0976-6510 (Online)
Volume 5, Issue 1, January (2014), pp. 01-06
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IJM
©IAEME
INTERNATIONALIZATION OF MSMES: A STRATEGY FOR
COMPETITIVE DEVELOPMENT
Prof. VIMAL DEEP SAXENA
PH.D (Registered), MBA (International Business), PGDSCM, PGDCP, B.A.
Assistant Professor – International Business Areas, Sinhgad Business School, 19/15,
Smt. Khilare Marg, Off karve road, Erandwane, Pune- 411004
ABSTRACT
Small and Medium Enterprises are an important part of any country’s development. In
developing countries like India where the infrastructure facilities for development are inadequate and
entrepreneurial activities are scare, MSMEs are doing remarkable by contributing in industrial
output, exports, employment generation and creating entrepreneurial opportunities. However, the
threats and challenges are also ample in MSMEs way. In this highly competitive world where entire
world has become a single place for business, MSMEs also have to become global for the sustainable
development. Recession, economic slowdown, competition from MNCs etc are some of the major
issues standing before MSMEs and to tackle them they have to have a sustainable strategy. This
study focuses on the strategy of Internationalization for the sustainable competitive advantage to
fight with the challenges and impediments before MSMEs. The purpose and main objective of this
study is to emphasize on internationalization strategies for MSMEs with its procedure. To understand
better, descriptive research methodology is used to pinpoint the process of internationalization for
MSMEs and analysis is done with the help of Chi-square test on the data collected by a structured
questionnaire from a sample of 50 MSMEs situated in Shivane area of Pune (India).
Keywords: Internationalization, Strategies, Competitiveness etc.
INTRODUCTION
The requirement of current business environment is, to make the firm highly competitive so
that it can sustain in this globalized world. Globalization, which brought several opportunities for
business development, has not come alone. It came with lot of challenges and intense competition. In
this heavy competitive and globalized business world, big firms may work upon the strategies for
sustainability, however for micro, small and medium enterprise; it’s really a tough and challenging
task. MSMEs have to fight in the era where international customers, global supply chain,
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2. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 - 6510(Online),
Volume 5, Issue 1, January (2014), © IAEME
international sourcing, and international alliances are becoming the valuable trends of business. And
in this era, MSMEs also have to develop the strategies to align with the emerging trends.
Globalization has evolved and opened up the doors for business places and as result to these MNCs
and big multinationals are growing and tapping and maximum share of the market. In this situation
MSMEs also can not stay back at home and dependent on domestic market only for the business.
MSMEs too have to make their way to go international to expand their market, business and
customer base. By adopting internationalization strategy MSMEs also somehow diversify their risk
and make them sustainable in this highly competitive world.
In today’s dynamic world, the evolution from a small domestic firm to an established and
international company is a key step for any firm. Globalization has made this issue of
internationalization very significant for researchers as well as practitioners and study is also done
related to the issue.
India has established the Ministry of Micro, Small and Medium Enterprises (MSME) to
develop small and medium enterprises in India and this agency works for the development of
MSMEs by creating opportunities and providing several schemes to them still SMEs have to look at
their way out to approach foreign market by internationalizing them.
OBJECTIVES
Primary Objective
1. To find out the competitiveness of internationalization strategy for MSMEs.
2. To understand the current scenario and problems of MSMEs.
LITERATURE REVIEW
For this research paper, mainly study of literature is done that cover various problems in
SMEs, approaches to go international, focusing on strategies which have been developed to meet the
requirement of SMEs in this globalized world. Literature on internationalization defines them as born
global firms or international new ventures. The first one is defined as “the firms that view the world
as their marketplace from the outset and see the domestic market as a support for their international
business” (McKinsey & Co., 1993), and the other one as “business organizations that from inception
seeks to derive significant competitive advantage from the use of resources and the sale of outputs in
multiple countries” (Oviatt & McDougall 1994).
Porter put a mark on the fact that international competitive advantage is often achieved
through aggressive domestic competition (Porter, 1990). Recent research into internationalization has
found that a majority of firms engage in both outward (e.g. sales/export) and inward (e.g. import or
access to knowledge) activities in the international field. It has been found that the firms engaged in
export business, a majority was not confined to exporting alone but also involved in a range of
inward and linked forms of international behavior that interacted.
Problems of SMEs may be divided into two groups – external and internal. External are the
problems which are beyond the control of the industrialist such as availability of power and other
infrastructural facilities and internal problems such as industrial relation, distribution channel,
inadequacy of management etc. Bureaucratic hurdles and financial problems are some major
problems in their way. Organized sectors can face the problems effectively however, unorganized
sector finds it very difficult to handle. (Vasant Desai, 2007).
The stage approach for internationalization is discussed by various researchers for taking
SMEs global. According to the stage approach, first companies sell their products in local market
and then sequentially look for the opportunities in international countries. Within the stage approach
two main models can be identified: the Product Life Cycle Theory by Raymond Vernon (1966; 1971;
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3. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 - 6510(Online),
Volume 5, Issue 1, January (2014), © IAEME
1979) and the Uppsala Internationalization Model (Johanson & Wiedersheim-Paul, 1975). According
to Vernon (1966; 1971) the internationalization process of the firm follows the development of the
product Life Cycle: companies usually introduce new products only in their home market and then
they eventually go abroad in the product maturity phase. The Uppsala Internationalization Model
(Johanson & Vahlne, 1977, 1990) talks about the gradually increases of enterprise its international
involvement. The entering of new markets by the firm is usually linked to the psychic distance:
companies start their internationalization from those markets perceived as psychically near.
Many studies have shown that ICT and technology levels are also very higher in
internationalized SMEs in various sectors.
CHALLENGES
The challenges may be big or small but if they are not taken care properly, they can be major
obstacle in MSMEs way of internationalization. Some of the certain challenges can be categorized as
discussed below.
As per the OECD-APEC report 2007 some of the major challenges stated in MSMEs way
described as such.
1. Inadequate quantity of untrained personnel for internationalization.
2. Shortage of working capital to finance exports.
3. Limited information to locate/analyze markets.
4. Identify foreign business opportunities
5. Lack of managerial time to deal with internationalization.
6. Inability to contact potential overseas customers.
7. Developing new products for foreign markets.
8. Unfamiliar foreign business practices.
9. Unfamiliar exporting procedure/paperwork
10. Meeting export product quality/standards/specifications.
Some other major problems in Indian context can be considered as:1.
2.
3.
4.
5.
Shortage of working capital to finance exports
Identification for foreign business opportunities
Limited information to locate or analyze markets
Inability to contact potential overseas customers
Lack of managerial time, skills and knowledge
DATA ANALYSIS
Data is been collected from various sources including primary and secondary to conduct this
study. Secondary data is collected from various journals and past studies on the topic whereas
primary data from 50 MSMEs with direct interaction with a questionnaire. From secondary data
mainly found models discussed above as the stage approach of internationalization. To conduct this
study descriptive research methodology is used. The responses were tabulated and a Chi Square test
was conducted to test the hypothesis.
There were 15 questions in questionnaire which were pre-tested with the consultation of 10
employees of different MSMEs in sample area. The type of questions was dichotomous (Yes/No).
There were 15 questions so the mean value 9 has been taken as the acceptance rule. From the
attributes, questionnaires received were analyzed by calculating the total number of yes or no. If yes
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4. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 - 6510(Online),
Volume 5, Issue 1, January (2014), © IAEME
were 9 or <9 then the questionnaire was taken as yes else no. This is how the attribute table is created
and number of responses was tabulated (See table no. 3) and hypothesis is tested with the final
calculation of χ2.
Ho: “Internationalization is not a competitive strategy for the development of Micro, Small and
Medium Enterprises.”
Ha: “Internationalization is a competitive strategy for the development of Micro, Small and
Medium Enterprises.”
Following table shows the responses received:
Table-1: Table of attributes
Yes
No
Type of Firm
Total
Micro
10
13
23
Small
11
07
18
Medium
08
01
09
Total
29
21
50
Obs. Freq.
(Oij)
Table- 2: (Calculation of Chi-square)
Exp. Freq.
(Oij – Eij)
(Oij – Eij)2
(Eij)
(Oij – Eij)2 / Eij
10
13.34
-3.34
11.1556
0.8362
13
9.66
3.34
11.1556
1.1548
11
10.44
-0.56
0.3136
0.0300
07
7.56
0.56
0.3136
0.0414
08
5.22
2.78
7.7284
1.4805
01
3.78
-2.78
7.7284
2.0445
Total :
5.5874
From the above table it is clear that χ2 calculated = 5.5874
Now,
χ2 from std. statistical table value, with 2 degree of freedom at 10% level of
significance is 4.605. The calculated value of χ2 (5.5874) is more than standard value of χ2 (4.605).
Since χ2 calculated > χ2 as per the Table value,
Hence, the null hypothesis that, “Internationalization is not a competitive strategy for the
development of Micro, Small and Medium Enterprises” is rejected.
The alternate hypothesis that, “Internationalization is a competitive strategy for the development
of Micro, Small and Medium Enterprises” is accepted.
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5. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 - 6510(Online),
Volume 5, Issue 1, January (2014), © IAEME
DISCUSSION
Table one was created by taking the responses from the sample size. The table recorded the
responses on the basis of the mean value of the asked questions in questionnaire. There were 11
dichotomous type of questions in questionnaire and if there 6 yes then it was recorded under yes else
no. Then Chi square calculation was done and as calculated value is more than standard value so null
hypothesis is rejected and alternate in accepted.
FINDINGS
From the analysis of data and also acceptance of the hypothesis that Internationalization is a
competitive strategy for MSMEs,
1. It can be understood that the MSMEs are facing many challenges especially the competition
from global firms and internationalization strategy can help them to explore into a larger
market and mitigate the impact of competition. Through the primary data collected it was
understood that micro level firms were not so sure whether this strategy can help them
completely.
2. The analysis of the data also confirms that such strategies over a period of time shall enable
competitiveness in MSMEs performance as they get experience of the global market.
Considering current situation, MSMEs need more assistance from government to go ahead.
LIMITATION
This study is limited to 50 respondents (MSMEs) from Shivane region of Pune.
CONCLUSION
The strategy of internationalization emerges on account of intensive competition coming
form global world and MSMEs have to focus on this issue critically. Though such strategies have
been proposed by eminent researchers but still implementation has been very slow. It was observed
that in this competitive world MSMEs also have to link themselves with the global market. MSMEs
also have to become global for sustainable development. Similarly, it is also imperative to know that
Pune being an industrial place in India with lot of industrial hubs, MIDCs and global linkages
facilities here, MSMEs need to have thorough information about emerging avenues useful for global
reach. Hence, the study signifies that internationalization strategy could be one of the best strategies
to achieve sustainable competitive advantage for small and medium enterprises to compete with
global competition.
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