Critical Literature Review; How Do Smes Internationalise? a Review of the Stages Model, the Network Theory and the Born Global Phenomenon

Topics: International trade, Globalization, Internationalization Pages: 8 (2645 words) Published: March 17, 2013
Critical Literature Review;
How Do SMEs Internationalise? A Review of the Stages Model, the Network Theory and the Born Global Phenomenon During the past five decades, the internationalisation of firms, with particular interest in small to medium sized enterprises (SMEs), has received a considerable amount of research interest (Bell, 1995) as a result of the evident increase in internationalisation of firms and industries (Johanson and Vahlne, 1990). Resulting from multiple research studies, three different literature streams were developed. The first stream, often referred to as the ‘Uppsala Model’ (Johanson and Vahlne, 1977), depicts that firms will follow multiple incremental stages when going abroad, whereby the ‘psychic distance’ largely influences the choice of country for expansion. Approximately twenty years later Coviello and Munro (1995; 1997) introduced the ‘Network Theory’ concept, claiming that a key determinant of the internationalisation process of small firms are its formal and informal network relationships. More recently, studies found evidence indicating that firms nowadays internationalise rapidly and almost directly after inception (McDougall and Oviatt, 2005; Bell et al, 2003), leading to a whole new approach to internationalisation, the ‘Born Globals’. Throughout this literature review, the three different internationalisation approaches will be critically discussed in chronological order of their establishment. Subsequently, the three approaches will be compared to one another in order to integrate them with each other and create a better understanding. Finally, the observations of this article will be summarized and a conclusion will be provided.

As indicated in the introduction, the first theory is the ‘Stages Model’ to which Johanson and Wiedersheim-Paul (1975) have contributed significantly with their concept of the ‘establishment chain’, which posits a series of evolutionary stages through which firms internationalise incrementally. Moreover, it depicts that firms initially target neighbouring countries, as their ‘psychic distance’ in terms of cultural, economic and political differences and geographic proximity is smaller. An additional underlying assumption is that, before venturing abroad, firms are well established in the domestic market (Bell et al, 2001; Bell et al, 2004). Further building on these assumptions, Johanson and Vahlne (1977; 1990; 2009) conducted an empirical study on the behaviour of large manufacturing firms and indicated two change mechanisms, namely change by learning from experience and change by commitment. Exceptions to the rule are firms with large resources and much experience from similar other markets, and stable and homogeneous market conditions (Johanson and Valhne, 1977; 1990). Although the stages model has received significant support, the model also received a large amount of criticism. The most often cited criticisms are that the model is much too deterministic, is not applicable to service firms, ignores the fact that firms often omit stages, wrongly assume step-wise progression, plus it pays insufficient attention to the context of industry, company or people and the development of alternative strategies and entry modes (Bell, 1995; Bell et al, 2001; 2003; 2004; Chetty and Campbell-Hunt, 2004; Forsgren, 2002; Johanson and Vahlne, 1990; 2009; Madsen and Servais, 1997; Petersen et al, 2003). More specific, Anders (1993) has criticized the stages model for its weak theoretical underpinning, the absence of a longitudinal research basis and the lack of explanatory power and congruence between theory and practice. Also the influence of psychic distance is questioned, as several studies have found no relation between distance to market, sequence of market entered and rate of foreign expansion (Bell, 1995; Ellis, 2007). Moreover, the changing environment and the advent of the ‘Born Globals’, which will be discussed later, has created even more serious...
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