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b) the arrangements of international engagement (exporting, cooperative engagement, foreign
direct investment) and;
c) competitive advantage (i.e. the positive attributes that differentiate a company or its product
from its competitors in the eyes of its customers including product quality, prices levels,
innovation, product adaptation, distribution arrangements, adapting the communication policy,
listening quality, productivity).
The internationalization strategies of a SME will depend on its aptitude to mobilise internal resources
and to identify the role of the institutional environment (Hamel and Prahalad, 1990; Arrègle, 2000). or
SMEs to be competitive in the market place, they will have to offer good quality products, adapted to
the requirements of the environment, at competitive prices. Consequently, they must use distribution
systems, network efficiently, and communicate policies adapted to the requirements of the target
markets. SMEs can obtain considerable learning opportunities while satisfying the diverse customer
needs and responding to different competitors in international markets (Pangarkar 2008).
The need to collaborate and to achieve an international presence has become a necessity, especially for
SMEs, but the challenges encountered with such strategies are high as it is not uncommon to see high
failure rates (Spence et al. 2008). Internationalisation might lead to problems that are associated with
liabilities of foreignness and smallness, and this may lead to poor financial performance coupled with
other concerns for managers (Bell 1995; Lu and Beamish 2001). While internationalization can be
perceived as opportunity-seeking choice on the part of firms, it may also represent a critical decision
due to the costs and risks involved (Cheng an Yu 2008).
1.5.1.Specific Operational Challenges of Internationalisation for SMEs
Three main challenges for SME internationalization can be identified. First, they must evaluate
whether, when, and how to operate overseas. Second, there is a need to design long-term planning
processes and business systems to cope with the uncertainties and complexity associated with the
internationalisation process. Third, internationalising SMEs must also attend to regulatory issues and
payment security issues in both their own country and overseas (Anderson et al. 2001). Managers need
to learn constantly during the progressive process of internationalization, and interact consistently
through their personal and business networks. The biggest challenges for internationalisation, from the
viewpoint of managers, are entry routes/methods, transport/logistic difficulties, awareness of tariffs
and barriers and language problems. Payment issues also appear high on the list of challenges.
In general the constraints of management time lead smaller firms to take short-cuts in decision-making
and information gathering. This could lead to disastrous outcomes (Buckley (1999).
Internationalisation increases the requirements for coordination and communication among different
units within SMEs and with third parties located in different geographic areas (Pangarkar 2008).
Relative scale and resource disadvantages can impact adversely on the likelihood of success of their
internationalization initiatives (Pangarkar 2008). It has also been argued that if SMEs are compared to
large firms, SMEs are less competitive. They may not be able to capture business opportunities due to
inferior products, shortages of finance and limited administrative capacity (Jansson and Sandberg
(2008). Any foreign market initiative will soak up a larger proportion of resources of a SME than a
large firm. In the event of failure of the particular initiative, the impact on a SME may be greater,
which increases the risk levels of them (Lu and Beamish 2001).
1.5.2.Barriers to Exporting
There are different barriers to exporting. The advantage of exporting for a firm is that it avoids the cost
of manufacturing in the host country. This might also be seen as a disadvantage if the costs of
producing the goods are cheaper in the host country. However, a firm can gain substantial economies
of scale from its global sales volume, when it is producing in the home country and exporting to