INTERNATIONAL JOURNAL OF ADVANCED RESEARCHInternational Journal of Advanced Research in Management (IJARM), ISSN 0976 – 63...
International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324 (Print),ISSN 0976 – 6332 (Online), Volu...
International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324 (Print),ISSN 0976 – 6332 (Online), Volu...
International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324 (Print),ISSN 0976 – 6332 (Online), Volu...
International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324 (Print),ISSN 0976 – 6332 (Online), Volu...
International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324 (Print),                               ...
International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324 (Print),  ISSN 0976 – 6332 (Online), Vo...
International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324 (Print),          ISSN 0976 – 6332 (Onl...
International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324 (Print),ISSN 0976 – 6332 (Online), Volu...
International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324 (Print),ISSN 0976 – 6332 (Online), Volu...
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Internationalization from sme perspective with reference to pump and motor manufacturing industry of coimbatore district

  1. 1. INTERNATIONAL JOURNAL OF ADVANCED RESEARCHInternational Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324 (Print),ISSN 0976 – 6332 (Online), Volume 3, Issue 2, July-December (2012) IN MANAGEMENT (IJARM)ISSN 0976 - 6324 (Print)ISSN 0976 - 6332 (Online) IJARMVolume 3, Issue 2, July-December (2012), pp. 01-10© IAEME: ©IAEMEJournal Impact Factor (2012): 2.8021 (Calculated by GISI) INTERNATIONALIZATION FROM SME PERSPECTIVE WITH REFERENCE TO PUMP AND MOTOR MANUFACTURING INDUSTRY OF COIMBATORE DISTRICT Ms.G.JAYANTHI RESEARCH SCHOLAR, KARUNYA UNIVERSITY KARUNYA SCHOOL OF MANAGEMENT COIMBATORE, TAMIL NADU Email Id Dr.R.AMUDHA Associate Professor, KARUNYA UNIVERSITY KARUNYA SCHOOL OF MANAGEMENT COIMBATORE, TAMIL NADU Email Id: amudha@karunya.eduABSTRACTIn the era of global business, Internationalization of firm has been a critical factor for companiesand paid attention to small and medium sized enterprises(SMEs). In this article we examine theinternationalization process of SMEs. From the earlier studies it is evident that themanufacturing firms follow the Uppsala model of Internationalization by starting thecompany to operate in domestic market and slowly advancing to other countries. Accordingto Uppsala model of Internationalization slow and incremental base of Internationalizationprocess will reduce the risk factor and increased commitment will lead to an increasedinvestments in global operations. Another issue that we are dealing with, is, experience fromearly inward internationalization activities can influence on outward international activities insmall and medium sized firms.The presented empirical findings are based on the 143 small and medium sized pump and motormanufacturing firms the researchers had through mail surveys and in- depth interviews. The 1
  2. 2. International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324 (Print),ISSN 0976 – 6332 (Online), Volume 3, Issue 2, July-December (2012)results show that, initial export markets are closely associated with cultural and Geographicalfactors. The initial mode of Operation tend to be Direct exporting. Important factors wheninternationalizing seem to be the increased commitments and increased investments and alsothe other variables such as management’s interest in international activities, previousinternational experience etc.Key words : Entrepreneurship, Internationalization, SMEs I. IntroductionInternationalization is a phenomenon researched intensively over the last few decades from avariety of viewpoints including organizational theory, marketing, strategic management,international management and small business management. Issues such as internationaldecision making and management, the development of international activities and factorsfavoring internationalization have been studied for both large as well as small businesses. Thefocus of this study is on small and medium enterprises (SMEs) and their strategicinternationalization and export behaviour. Given the nature of today’s market place, SMEs areincreasingly facing similar international problems as those of larger firms. II. Background of the studyCoimbatore is a multi sectoral cluster having a large number of pumps & motors manufacturingunits and light engineering enterprises, in addition to the large number of foundries. Since localpumps and motor industry is one of the main customers for local foundries, one would expectstronger linkages across the supply chain resulting in increased vertical cooperation. The demandin the domestic market is so huge that the industries have never really explored the possibility ofexports of this product due to which the Indian pumps & motors industry was not very consciousabout modernization and up gradation and was quite satisfied with its ‘casual’ approach.Globalization, which has opened the doors of India to multinationals, coupled with growingconcerns of pollution control, water and waste –water treatment, and demand for energy –efficient systems is changing the scenario of the Industry. III. Profile of the Industry : The Pumps & Motor clusterThe motor & pumps cluster in Coimbatore accounts for around Rs 2000 crores i.e. 40% to 50%of the value produced in the country. Out of the total export of 400 Crores from Coimbatore thepumps & motors export is approximately Rs.30 crore. The pumps & motor units are spreadacross the rural, urban parts of the district and scattered all over the city. The average investmentin plant & machinery of pumps & motors units is between. Rs.15- 25 lakhs/unit. Agriculturesector consumes about 35% of the total power generated in running the electrically operatedpump sets. Most farmers use inefficient non ISI marked pump sets which consume moreelectricity and deliver less output. There is a potential of about 25% to 35% improvement inthe efficiency of these pump sets by affecting minor/major rectification and shifting to ISImarked pumps IV. Objectives 1. The main objective of this study is to know the motives of Internationalization and the role of firm’s management in International activities 2. To analyse the role of foreign sales and the mode of operations in foreign countries. 3. To find out the importance of the triggering factors to operate internationally by the exporting firms 2
  3. 3. International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324 (Print),ISSN 0976 – 6332 (Online), Volume 3, Issue 2, July-December (2012) V. Internationalization theoriesThe most traditional way of describing the process of Internationalization is by the U model orthe Uppsala Internationalization model ( Johanson&Vahlne 1977) The U model containsdifferent steps that describe the firm’s level of Internationalization. In the beginning the firmhas no regular exports and initiates its internationalization process by direct exporting to aforeign country. The basic assumptions of the model is that one cycle of events constitutes theinput of the next. The stage model has been criticized in different respects for being toodeterministic not emphasizing on the social networks in the business. The ‘Network’ approachof Internationalization is most often applied on vertical relationships, between sellers andbuyers. Social networks have been pointed out as extremely important for entrepreneurs.According to Zahra and George (2002), the term “International Entrepreneurship” first appearedin the article by Morrow in 1988. Morrow (1988) suggested that advancements in technology,declining cultural barriers and increasing cultural awareness has opened once-remote foreignmarkets to all kinds of companies; small firms, new ventures as well as established companies.Soon after that, McDougall’s (1989) empirical study comparing domestic and international newventures paved the way for academic study in international entrepreneurship (McDougall&Oviatt, 2005, p. 537).International entrepreneurship theory argues that“ individual and firm entrepreneurial behaviouris the basis of foreign market entry” (Mtigwe, 2006, p. 16). A modification of McDougall andOviatt’s (1994) definition of entrepreneurship is given by Stevenson and Jarillo (1990, p. 23), forthem entrepreneurship is “a courageous managerial value creation process through which anindividual engages innovative, proactive, calculated risk-taking behaviour designed to prosecuteforeign business opportunities”. According to IET theory, the key to internationalizationnowadays is the entrepreneur. He is the one that possesses the skills and enough information tomeasure the opportunities in the market with ability to create and make stable relationships withother firms, suppliers, customers, government and media VI. Data Collection & ResearchThe research was carried out during Feb- June 2012. The target group was Pump and motormanufacturing companies of Coimbatore District with less than 500 employees. Thecompanies were mostly within manufacturing engineering products like Pumps and Motors.The sample was drawn from a national database and all the firms within the selectedbusiness areas were chosen.A structured questionnaire was used to collect the data from therespondents. The questionnaire was answered by Export managers, Marketing Managers orby the Owner founder of the Companies. The average number of Employees was 60 and theaverage turnover was about Rs.4 to Rs.40 crores. The turnover gained from the foreignbusiness activities was in an average of 25% to 50 % which was answered by 58respondents out of 143 sample size. i.e, 41% of the respondents belong to this category. VII. Empirical FindingsThere are many possible driving forces behind a firm’s internationalization pattern. Thesefactors are generally divided into two categories: proactive and reactive motivating factors. Theformer group consists of management’s perceived benefits or opportunities. For instance,increased revenues or profits may motivate the firm to enter the international arena. Thesecond group, i.e., the reactive motivators, refers to a set of motivators caused by the firm’sresponse to environmental changes. For instance, overproduction, declining domestic sales,excess capacity and saturated domestic markets may cause the firm to explore new globalmarkets. 3
  4. 4. International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324 (Print),ISSN 0976 – 6332 (Online), Volume 3, Issue 2, July-December (2012)7.1 Motives of InternationalizationThere are two factors that influence SMEs internationalization: proactive and reactive. FromTable 1,127 companies( 88.8%) have opted international operations through proactive motivesand only 16 companies have opted the reactive motives for entry into international markets. Table 1- Motives of Internationalization S.No Motives of Internatioanlization Frequency Percent 1 Pro activeness 127 88.8 2 Re activeness 16 11.2 Total 143 100.0 Table 2 – Reactive Motives S.No Reactive motives of internationalization Frequency Valid Percent 1 Over Production 2 12.5 2 Declining Domestic Sales 0 0 3 Excess capacity of production 10 62.5 4 Saturated domestic markets. 4 25.0 Total 16 100.0From Table 2, it is observed that none of the company has quoted that decline in domestic salesis the reactive motive for internationalization. But Pump and Motor manufacturing companiesare having good domestic market and the ethnocentricity or the strong home market makesthe selected Industry for their motive of Internationalization. 127 companies haveinternationalized through the Entrepreneur’s pro activeness in entering international markets.7.2 Reasons for InternationalizationThe Proactive and Reactive motives shape the SMEs’ reasons to go international. Table 3 -Reasons for Internationalization S.No. Reasons for Internationalization Frequency Valid Percent 1 Increase in Profits 44 31 2 Lower demand in domestic markets 2 1.4 3 Owner’s interest in going to international markets 46 32.1 4 Market expansion 22 15.3 5 Product characteristics 12 8.4 6 Organizational Goals 17 11.8 Total 143 100Table 3, suggests that most of the SMEs analysed, enter international markets because ofmarket opportunity , expansion and profit. 44 Companies have chosen ‘Increase in profits’, 46opted ‘Owner’s interest’ in going to international markets and 22 have suggested ‘marketexpansion’ are the main reasons for international activities.Product characteristics are also thereason for exploring new markets since many companies manufacture their products withInternational standards supported with R & D facility.Lower demand in domestic market wasnot selected by respondents since the selected units are having a strong home market base. 4
  5. 5. International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324 (Print),ISSN 0976 – 6332 (Online), Volume 3, Issue 2, July-December (2012) Table 4- Operation Mode in International outward activities S.No Mode of Operations Frequency Percent 1 Direct export to end customer 79 55.2 2 Direct export & through Foreign agent 42 29.3 3 Domestic agent 2 1.4 4 Importer/ reseller( distributor) 2 1.4 5 Direct Export & through Sales Office 12 8.4 6 Joint Venture 2 1.4 7 Others 4 2.8 Total 143 100.0The operation modes, given in Table 4, used initially for foreign sales were mostly directexport to the end customer, secondly selling through an importer or a reseller and thirdlythrough a foreign agent. From the above table it is clearly stated, that direct export to the endcustomer is by far the most popular operation mode. Secondly we have foreign agent andother modes are through importer or reseller, having a sales office and also two companiesare having joint venture with the foreign countries, other 4 companies are foreigncompanies having their own subsidiaries in Coimbatore. Knowledge about foreign markets isgained when using direct export to the end customer. When using importers or foreign agentsthe knowledge about the end customer and the market is low. As it can be concluded, thatwhen companies started to export to the other countries Direct Export mode is the mostpopular one.7.3 The Initial Entry Into Foreign MarketsThe most important in the beginning is the importing countries such as, Indian subcontinentsand Middle east. 70 firms are exporting to Indian subcontinents which include Malaysia,Singapore, Australia, UAE, Burma, Srilanka, Taiwan, Turkey, Europe, Dubai, Japan, USA, UK,Africa, East middle Africa, South Africa Caribbean and SAARC Countries. Much impact onthe company’s decision to start operating internationally was the management’s interest inInternationalization, foreign enquiries about the products or services and the motive of profitmaximization and business diversification. Table 5, shows 40.6% have 26-50% of export salesand only 22.4% have above 50% of share in foreign sales. Table 5 -Share of Foreign Sales in the Market. Share of Foreign sales Frequency Percent 1 Below 25 % 53 37.1 2 26-50% 58 40.6 3 above 50% 32 22.4 Total 143 100.0 Table 6 - Characterization of the company according to the Foreign Sales. Characterization of the Company Frequency Percent 1 Occasional 30 21.0 2 quite regular 79 55.2 3 Highly regular and continuous 34 23.8 Total 143 100.0 5
  6. 6. International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324 (Print), ARM),ISSN 0976 – 6332 (Online), Volume 3, Issue 2 July-December (2012) olume 2,In the above table 6, out of 143 companies 79 companies are the quite regular companies, iteexporters and 23.8% of the respondents are highly regular and continuous exporters. Table 7 Speediness of Internationalization 7- S.No Speediness of Internationalizations Frequency Percent 1 upto 5 years 26 18 2 6-15 years 70 49 3 above 15 years ove 43 30 4 Foreign Companies 4 3 Total 143 100.0Table 7, shows that, out of the 143 companies, 26 companies have taken hardly 5 years fto export their consignments to foreign countries which shows the speediness of speedInternationalization. 70 companies have taken 6 15 years for Internationalization ion. 6-15process which is considered as medium speediness. And 43 companies have takenmore than 15 years for their Internationalization process which is a very slow andsluggish in Internationalizing. Four companies have included in the study which are .foreign companies previously internationalized and having their own subsidiaries inIndia. Table 8 - Average No. of export countries S.No No. of Countries Companies Percent 1 1 0 0 2 2- -4 13 9.1 3 5- -9 75 52.4 4 above 10 55 38.5 Total 143 100.0 Fig. 1 – Number of Countries Exported by companies 2-4 5-9 above 10 9% 39% 52%From the above table 8 and Fig. the total number of countries in which the companies Fig.1,conducted foreign sales can be seen around 52% are exporting to 5-9 countries and 9around 39% are exporting to more than 10 countries. 6
  7. 7. International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324 (Print), ISSN 0976 – 6332 (Online), Volume 3, Issue 2, July-December (2012) Table 9 - Number of Buyers in the domestic Market and abroad S. no No. of buyers count Home market Foreign market Total 1 1-4 109 - 34 143 2 6-10 69 - 74 143 3 11-15 93 26 24 143 4 16-20 120 10 13 143 5 21-25 137 6 - 143 6 26-30 109 26 8 143 7 >30 69 58 16 143 (Count is a column where the data is not entered for the particular factor) As visualized in table 9, the companies most often had over 30 customers in the home market is 58 and 16 firms are having more than 30 customers outside the country. Of the 143 companies 126 companies are having good domestic market. Hence the home market still seems to be of great importance for the companies in general. 74 companies are having export market of 6-10 countries and 16 companies are having good export market of selling products to more than 30 countries. 7.4 Management’s Role Of International Experience The role played by the Entrepreneur or Management is crucial in the rapidness of internationalising. Several factors influence in taking decisions for entering foreign markets. Table 10- Management’s Role in Internationalization ProcessFactors No one One of company Many Count % Count % Count %has lived abroad 13 9.09 106 74.13 24 16.78has studied abroad 64 44.76 69 48.25 10 6.99has worked in another company in international assignments 120 83.92 19 13.29 4 2.80has worked in a foreign company having lot of international 121 84.62 11 7.69 11 7.69experiencetravel abroad once or twice a year 19 13.29 49 34.27 75 52.45managed a company in abroad for current company 128 89.51 9 6.29 6 4.20firm has foreign directors 118 82.52 25 17.48other experiences 21 14.69 4 2.80 118 82.52 From the above table10, it is observed that, 106 companies answered at least one of the person had lived abroad and 69 answered one of them had studied in foreign country and 75 answered that they travel abroad at least once or twice a year. Thus it shows that the management does not have much international exposure enabling to operate in foreign countries. On the other hand, one can assume that only one or a few need to have international experience in a company before entering international business. 7.5 Major Variables in the Internationalisation Process: The main idea behind this study, was to check out which variable from each Internationalization theories still fit into the SME internationalization process. The 7
  8. 8. International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324 (Print), ISSN 0976 – 6332 (Online), Volume 3, Issue 2, July-December (2012) purpose was to understand which of the variable played the most influential role in the process and in what degree of Importance, although some variables can be applicable to more than one theory. Table 11 - Major Variables in the Internationalisation Process Mean Rank* Variable ID Main variables in Internationalization process Mean SD C2_1 Business network and relationship 4.59 0.663 6.84 C2_2 Entrepreneurial activity 4.41 0.763 5.78 C2_3 Resources of the company 4.32 0.623 5.17 C2_4 Skills of the employees to operate internationally 4.55 0.553 6.45 C2_5 Innovative behavior of firms 4.02 1.024 4.90 C2_6 Standardization, Centralizations & marketing 4.73 0.506 7.24 C2_7 Managers of the firm to have previous international experience 4.59 0.799 6.84 C2_8 Experience from early inward international activities 4.41 0.799 5.93 C2_9 Entrepreneur’s motivation 4.15 0.695 4.55 C2_10 Entrepreneur’s risk taking ability 4.27 0.605 4.95 C2_11 increased commitment will lead to increased investments. 4.73 0.605 7.37 (* Mean Rank extremely minor impact=4 and extremely major impact = 7) From Table 11, it is deduced that, Increased commitments will lead to increased investments and vice versa is the most important variable to consider as Uppsala theory suggests. Next ranking is the standardization and centralization and marketing as the important activities . Followed by, Business network and the Entrepreneur’s previous international experience will make the SME successful the in internationalization process. Table 12 - Factors that affect the company’s Decision in InternationalisationVariable Triggering Factors Mean SD Mean Rank * IDE3_1 Internationalization of customers 4.38 0.794 8.53E3_2 Internationalization of competitors 4.14 0.946 7.45E3_3 Success of competitors in foreign markets 4.28 0.826 7.83E3_4 Management’s interest in internationalization 4.58 0.782 9.76E3_5 Management’s experience in internationalization 4.62 0.794 10.08E3_6 Competitive foreign sub contractors 3.76 1.027 5.62E3_7 Inadequate demand in the foreign market 3.66 1.100 5.59E3_8 Increasing competition in domestic market 4.22 0.873 7.59E3_9 Foreign enquiry about the company’s products / services 4.25 0.960 8.09E3_10 Lack of sub contractors in the home market 3.61 1.205 5.76E3_11 Market Entry Barriers 4.31 1.084 8.41E3_12 The company never considered its home market is the only market. 3.99 1.219 7.29E3_13 Export subsidies / subsidies for international operations from chamber of commerce/ 4.10 0.808 6.73 other support organization.E3_14 Lack of experiential knowle.dge in export markets 4.73 0.731 10.60E3_15 Lack of export commitment & the focus on Domestic Market. 4.76 0.660 10.68 (*Mean Rank extremely minor impact=5 and extremely major impact = 10) 8
  9. 9. International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324 (Print),ISSN 0976 – 6332 (Online), Volume 3, Issue 2, July-December (2012)From the above table 12, it is well understood that, the factors No.15 & 14 are havingthe major impact to operate internationally among the selected SME is Lack ofExport commitment and the focus is fully given on Domestic market. The nexttriggering factor is the management’s experience in internationalization is alsonoticeably important. The owner or the Entrepreneur should have some internationalexperience to operate internationally. Third is the management’s interest ininternationalization also makes the company operate internationally. VIII. FINDINGS AND CONCLUSIONSFrom the empirical findings we can conclude that the company or the management has to takeinterest in internationalizing their SME. The study indicates that the initial export marketschosen by the company are closely situated both culturally and geographically. Most of thecompanies are exporting their products to Indian Subcontinents and well established companiesare exporting their products to other major countries. A direct Export mode is preferred by thevast majority of the SMEs., because it is rather inexpensive operational mode that does notrequire any substantial commitments. In addition, based on the study, the important factors ininternationalizing seem to be the management’s interest in international activities as well asgaining knowledge about foreign markets as important factors. More studies are needed inorder to discover the nature and extent of connection between import and export activities. Forexample, empirical information covering both qualitative and quantitative data from casestudies and in-depth interviews would shed more light on this complex relationship and itsunderlying structure. Both in-depth and in –process research methods are needed to ponder intothe problems in internationalising.REFERENCES 1. Johansson.J&Vahlne, J E, 1977. The Internationalization Process of the firm-A model of Knowledge Development and Increasing foreign market commitments, Journal of International business studies, Vol.8, No.1, pp 23-32 2. Johansson J, &Vahlne, J E 1990. The mechanism of Internationalization , International marketing Review, Vol 7, No.4, pp 11-24 3. Isobel Dool& Robin Lowe 1999.Internatioanl marketing Strategies for Small and medium sized firms (SMEs) Second Edition, Thomson Business press Publications pp 221-265 4. Maria Forsman, Susanna Hinttu, SorenKock, Internationalization from SME Perspective, Work in progress paper, Department of management and Organization, Swedish school of Economics and Business 5. McDougall,PP., 1989. International Versus domestic Entrepreneurship: New venture strategic behavior and industry structure, Journal of Business venturing, Vol 4, pp 387- 400. 6. McDougall, PP &Oviatt, B M, 1997. Challenges for the Internatioanlization process theory: the case of Internatioanl new ventures, Management Internatioanl Review Special Issue 2, pp 85-99 7. MitjaRuzzier,Robert d Hisrich, BostjanAntoncic, SME Internationalization research: 9
  10. 10. International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324 (Print),ISSN 0976 – 6332 (Online), Volume 3, Issue 2, July-December (2012) past, present and future, Journal of small business and enterprise development, Vol 13, No.4, 2006 pp 476-492 8. Stevenson, H H, &Jarillo J C, 1990a Paradigm of Entrepreneurship: Entrepreneurial Management, strategic Management Journal, Vol 11, Summer special issue. Pp17-27. 9. Welch,L ., &Luostarinen, R., 1988Internationalization Evolution of a concept , Journal of general management Vol 14, No.2 pp 34-55 10. Zahra, S A., &George,G, 2002. Internatioanl Entrepreneurship: The current status of the field and future research agenda, in Hitt, M A., Ireland, R D Camp, S M, & Sexton D L Eds., Strategic Entrepreneurship : Creatign a new mindset, pp 255-288 Oxford, UK. Black well publishers. 10