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ANZMAC 2009

Barriers to internationalisation of SMEs in a developing country Dr. Kodicara Asoka Gunaratne, Unitec New Zealand Abstract A high percentage of small and medium sized enterprises (SMEs) in the developing countries fail to enter foreign markets due to their inability to overcome the entry barriers. This study therefore investigated the barriers to internationalisation of SMEs in Sri Lanka. Results are based on a postal questionnaire survey. Factor analysis was used to examine the underlying constructs in the data gathered. The four factors identified were labelled as – informational, operational, marketing and environmental barriers. Significant differences were observed in the evaluations of impact of a number of barriers between the owner-managers (OMs) of “growth” and “nongrowth” businesses. Results demonstrate internationalisation of SMEs is plagued by many obstacles in the home environment. Key words: Internationalisation, SMEs, barriers to exports

ANZMAC 2009

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Barriers to Internationalisation of SMEs in a Developing Country Introduction SMEs are of great importance to the expansion of export earnings in developing countries. However existing research shows that these businesses are under represented in the international economy as a result of the impediments to market access (APEC, 2004). A number of factors impede the participation of SMEs in the global economy. The conditions in the input and output markets, the skills and competencies of the employees, and the ownermanagers’ entrepreneurial orientation (Kazem and van der Heijden, 2006), influence the success of SMEs in foreign markets. It has been suggested that some of the dramatic changes that are taking place in the global market place would create new opportunities for businesses and bring prosperity to exporting nations (Cateora and Graham, 2007). Some of these are: the advances in information and transportation technologies; easing of trading restrictions with the removal of tariff and non-tariff barriers; formation of multinational market regions, free trade areas, economic unions, political unions and regional economic blocks to encourage regional trade; and the formation of the WTO to resolve world trade issues. But the opportunities created by these transformations in the emerging global business environment have been exploited largely by the market aware exporters in the developed world. Taking advantage of the advances in technology, telecommunications and infrastructure SMEs in these countries have established additional links with new customers while strengthening the relationships with existing business partners. The high profits gained through growth in exports have encouraged them to futher invest in foreign markets to extend their lucrative growth cycles. However all are not winners. Many have fallen on the way while crossing the international boundaries. They fail to overcome the obstacles that make their path to internationalisation impassable (Julien and Ramangalahy, 2003; Knight, 2000). Majority of these victims are the SMEs in developing countries. These businesses are sceptical about their ability to successfully cross national boarders (Carrier, 1999). This study therefore examines the barriers hindering the internationalisation of SMEs in a developing country.

Literature Review The growth in exports could come from the expansion of sales in the existing markets or through the entry into new markets. Past research has identified lack of technical skills (Chau and Pederson, 2000), fear of intense competition (Leonidou, 1995), organisational and operational problems (Hamill and Gregory, 1997), lack of knowledge of potential markets (Suarez-Ortega, 2003), limited information (Leonidou, 1995), tariff (Czinkota and Ronkainen, 2001) and non-tariff barriers (Kume et al. 2001), as some of the numerous impediments to exports. Leonidou (1995) defined the barriers to exports as those that hinder a...
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