Organizational
Internationalizing the Small and Medium Sized Firm – four cases
The challenge of organizing the internationalization process is very complex and probably the most important as well as difficult task for an SME. Most organizational theories available focus on large organizations and they are perhaps not as applicable on SME’s. When looking at the internationalization process from an organizational point of view, close links to entrepreneurial issues are arising, see above for a discussion on this matter. A small firm is usually organized in a very simple way (Mintzberg 1989) with informal communication and information channels. This is usually most appropriate and also works best in the beginning of a firm’s life. But when a firm opens up offices in other countries several problems are bound to occur.
A certain challenge is how the internationalization process should be managed. Being small and lacking resources make it hard to develop a complete organization at each location. There will be a tension between the local management and the owners/management at the head-office. Head management need to handle the situation carefully. Local management should be given their independence, yet for the sake of the company and its culture, head management must still exert some control over the local operations (free translation from Watson 1994). A further aspect of setting up offices in other countries is the question of using local management or management from the head-office. The advantages with having local managers are that they have local knowledge of the market and culture. The main advantages with managers from the head-office are that they possess good knowledge of the firm and its core values and strategies. Finding persons having all of these qualities is of course optimal, but that equation is often hard to solve.
Another important aspect of organizing the international venture is the cultural dimension. Johansson (2000:56) makes a major point when he concludes, “Culture is not only a fundamental dimension of any society but a very visible force affecting market demand as well as managerial behavior”. The sometimes problematic aspects of cultural differences between countries is developed in detail by Hofstede (1980) along four cultural dimensions, and the conclusion from his work is that differences between countries are very evident and they should be treated with respect and cautiousness in order to not cause unnecessary disturbances in a company’s organization. One more aspect of setting up offices abroad is the technical infrastructure and its maintenance dependability. Different local standards and malfunctioning systems could become a major problem. This is especially true for a knowledge intensive company that benefits from close interactions among their employees and over country borders. According to Applegate et al (1999) a strategy for the technical infrastructure is just as important as other strategic decisions. The conclusion should be that these matters should be taken seriously from the beginning.
Being an SME in growth, funding for the expansion can in most cases not solely be solved internally. To at least some degree external funding is needed. This creates dependence towards venture capitalists. The companies loose their freedom to fully decide over the strategy of the company. Many of the failures within the dot-com hype have been blamed on venture capitalists that have forced immature companies to internationalize in order to (hopefully) reap larger gains (Carlbom 2001). This behavior by some venture capitalists has lead to significant problems since it puts the companies in need of even more capital at later stages in the internationalization process, which has shown to be difficult to obtain (Carlbom 2001). One reason for this is that the initial investors do not have the funds to take part in these later capital injections, since they are normally more expensive than investments in start-ups. Falk & Reimfeldt (2002) study venture capitalists effects on young companies’ strategies. Among other things they look at how the new owners influence the internationalization process. For many of the companies in the study the new owners pressured the companies to expand internationally in hope of increasing the revenues, which in many cases did not turn out to be the case. In other cases though, the internationalization process have profited from the new owners networks and knowledge of the new market. This is also supported by Timmons (1987) who suggest that venture capitalists’ most important contribution is as an advisor.
The use of professional consultants is becoming more and more common, the complexity of the world makes it difficult and expensive to have all expertise within the company, this holds especially true for SME’s since they have limited funds. Johansson (1999) discusses the subject of to what extent SME’s use and need external consultants. Drawing from previous research he concludes that few SME’s see or even have the demand for external consultants. From his experience as a practitioner consultant though he argues that most SME’s very well could and should benefit from consultants. He therefore sees a need to develop certain forms for the collaboration, a discussion that he also develops further in his essay. From his remarks as well as some of the authors he refers to it can be concluded that SME’s ought to have the same needs for professional consulting as any larger size company. One limitation he as well as the authors of this thesis sees is the discrepancy between the consultant’s fee and the SME’s willingness and ability to pay. Common sources of advice for SME’s and its owners have been informal networks. But Stevenson & Sahlman (1999) discusses that change and complexity in the world has made friendly advice from former colleagues an obsolete source of valuable information. They argue for a strategy where advisors/consultants are involved deeply and early in the process of an entrepreneurial venture, which an internationalization process can be regarded as. Everybody is not that positive about using consultants. “McKinsey does not know more about the industry then we”, says Dag Häggkvist, one of the persons behind Deo.com (Ericson 2002).
