Smes in developing countries: financial and economic factors that affect export strategies

2. Introduction
3. Purpose of the
   study
4. Literature
   Review
5. Methodology
6. Target
   Population
7. Research
   Results
8. Conclusions
9. References

Abstract

This paper builds on studies from the literature on
competitive strategy, internationalization, and export
performance of SMEs in developing countries. Therefore, the aim
of this study is to determine the type of strategies that SMEs in
developing countries implement to internationalize their
products; as well, this paper intends to analyze economic and
financial factors that directly affect SMEs performance in global
market. This research project is tested by means of an empirical
study of a number of small and medium-sized enterprises located
in Colombia, South
America.

Key Words: SMEs; Developing countries; Internationalization;
Economic and financial factors; Export strategies.

Introduction

According to the U.S. Small Business
Administration and the Office of
International Trade (2008, August), United States" SMEs, as most
of Latin America small and medium-sized enterprises, represent
around 99.5 percent of all employer firms; moreover, they employ
about half of all private sector employees and create more than
half of non-farm private gross domestic product (GDP). In
addition, U.S." SMEs represent 97 percent of all identified
exporters, (accounting for close to 30 percent of the known
export value). In most if not all of Latin America, although
small businesses have similar impacts on the economy, SMEs
represent a very much smaller proportion of the export
population. This lack of SME participation in foreign markets
limits growth potential and competitiveness, and makes trade
appear as more of a threat than an opportunity.

A better understanding of SMEs" information
search, by which we mean the perception of export-related
information and use of information sources, would allow us not
only to find ways of helping these firms to develop and
consolidate their activities abroad, but also to see how other
firms with the potential or desire to begin international
activities could improve and benefit from their information
practices (Julien & Ramangalahy, 2003); thus, the intention
of this research is to investigate the financial and economic
information that affects SMEs" strategies of globalization in
developing countries, as well as investigate the perception these
enterprises have about the global market.

Purpose of the
study

The first objective of this study is to determine
the type of strategies that SMEs in developing countries
implement to internationalize their products; then, this paper
describes financial and economic characteristics of SMEs and its
relationship with export performance; after that, what factors
negatively affect the decision of SMEs to participate globally;
and finally, the study analyzes some SMEs" strategies used to
open up new export markets.

Literature
Review

According to the BNET Business Dictionary, the
definition for SME is an organization that is in the startup or
growth phase of development and has fewer than 500 employees
(2008). Within the strategic management literature, and
particularly within the resource-based view of the firm, there is
no common agreement on what distinguishes a micro-firm from a
small or a medium one, but generally a micro enterprise employs
less than 5 people (Liang, 2003). For instance, Chile considers
that 200 employees is the limit for a medium-sized enterprise,
while Mexico thinks that having more than 500 employees is a
large enterprise.

The globalization of markets, the internal market
of the EU, e-commerce, and
other institutional changes are examples of factors that have
gradually shifted the behavioral pattern of SMEs, causing them to
act in a more global manner than before (Holmlund et al., 2007).
Several researchers view the internationalization of firms as a
"process" whereby firms go through a series of "stages" of
increasing international involvement. It is suggested that firms
increase their international involvement as a result of their
accumulation of experiential knowledge of foreign markets, which
increases their comfort level with these foreign markets and
leads to further international involvement (Zyglidopoulos,
DeMartino, & Reid, 2006).

Although many authors perceive
internationalization of SMEs in a different way, Armario et al.
(2008) bring together some of them into two major perspectives;
the first perceives this course of action as being a sequential
process that leads from a domestic market to international
markets in accordance with a "learning process," and the second
perspective, derived from the international entrepreneurship
literature, contends that a firm can be "born global" (p. 485).
On the other hand, some studies conclude that the
internationalization process of the SMEs is being tackled by the
same small and medium-sized enterprise; for example, Julien and
Ramangalahy (2003) showed that most SMEs simply do not make the
effort, or are afraid of tackling international markets; but some
of them limit their international activities because of their
poor control over
these activities, mainly as a result of a lack of information (p.
227).