Influence of Intangible Capital on Internationalization Opportunities of Exporting SME 47

There are lot of academic debate between researchers of social capital, human capital and relational capital why each of these theories should be highlighted as a key element for entrepreneurial success both domestic and export market. I will argue that the combination of these elements would be the key element in the export business activities since according to Putnam not a single nation, community or even an individual can become successful without the influence of trust and social networks (Putnam, 2000, p. 319). The challenge arise since these terms many times overlap each other by definition and it is hard to determine whether a researcher is actually debating on behalf of social, human or relational capital or has he or she mixed the terms to each other. In this chapter I will focus on the earlier research done in the field of international entrepreneurship research limited only on export activities of SME linked with each form of debated capital. Internationalization processes of SME is not the main focus on this study even it is related in the early stage of SME or any company when exporting activities are planned. Internationalization as a phenomenon is limited only on linkage with earlier presented in-tangible capital and the entry mode of exports.

How entrepreneurship is defined in the academic literature? Casson (1991) argues entrepreneurship to be both an economic and social process. According to Balabanis & Katsikea (2003) entrepreneurship is a key element in modern business environment as it has been associated with the job creation and economic well-being. Authors argue importance of both internal and external factors affecting a company and their “entrepreneurship posture” which in the end has an influence on export performance. As an internal factors they highlight size of the company, their organizational structure and age while external factors are based on operational environment and its hostility, diversity and dynamism (Balabanis & Katsikea, 2003). When conducting research authors referred entrepreneurial posture could be measured with a scale developed by Covin & Slevin (1986) since following elements of entrepreneurship under measurement were risk-taking, proactiveness and innovativeness. When linking entrepreneurship posture to export the key elements under measurement were export sales growth and profit, return on investment from exports and overall export performance. When measuring results the export sales growth was removed by authors as a variable since results did not fit the theoretical model (Balabanis & Katsikea, 2003). According to authors there have been only small amount of research linking entrepreneurship and export performance (Zahra, Neubaum, & Huse, 1997; Caruana, Morris & Vella, 1998.) despite many empirical research

presenting evidence on importance of entrepreneurial activities of SME sector to export success. One main limitation in the research of Balabanis & Katsikea was that each surveyed company was British so therefore the results might vary in another context or country (Balabanis & Katsikea, 2003).

According to Kontinen & Ojala (2011) the research field of international entrepreneurship is highly based on rapidly internationalizing companies even the majority of companies (85 %) are family-owned SME businesses at least in Europe and the USA. They highlight social capital being an important factor on internationalization research focusing on entering the foreign market and the focus of social capital has been on the aspect of bonding instead of bridging which have been argued to play more important role on the internationalization process of SME (more on bonding and bridging social capital; Adler & Kwon, 2002). In order for SME companies to start their export activities they should focus more on bridging social capital which can open doors in the target market much better compared to bonding social capital as bonding refers to already established domestic network but bridging for new networks in a target market (Kontinen & Ojala, 2011). If any SME is about to start internationalization in a form of exports owner of the company or some member of the staff have to have relationships with other people (Portes, 1998) and access potential resources within these relationships (Sobel, 2002). Social capital can consist of either strong ties or weak ties which is referred how many times people have been in interaction where strong refers to many interactions and weak to only few. Granovetter (1973) argue weak ties would operate as a bridge of important information which are not in the close circle (strong tie) of an entrepreneur and therefore provide a unique perspective over needed issues since weak ties are not used as often. However, Granovetter (1985) argues strong ties to be more trustworthy as they usually contain an emotional bond between agents of network. Recent research of Söderqvist & Chetty (2009) illuminates the definitions of both strong and weak tie: “Strong tie is defined as one which is close and which is based on trust, mutual respect, and commitment. A weak tie is a superficial tie not yet based on strong trust and where the parties do not know each other well and are not emotionally close to each other” (Söderqvist & Chetty, 2009, 9). Findings of Agndal et al.

(2008) bind both types of network ties in a content of internationalization through foreign market entry since both ties were founded important on foreign market entry with their case companies. Strong ties were more important in the early phase of internationalization and weak ties in the latter phases (Agndal et al., 2008). Ojala (2009) continue with the set of ties focusing more closely on network structure and the roles of these ties within were divided to formal,

informal and intermediary ties. Söderqvist and Chetty (2009) point out both strong and weak ties could exist in all types of relations while Kontinen and Ojala (2011) argue the boundary between formal and informal ties are bit blurry as Larson and Starr (1993) point out earlier that informal ties can become formal and vice versa.

According to Johanson and Vahlne (2006) the internationalization process of companies can be viewed as a process where representatives of the company develop and access social capital as company initiate, establish and deepen network relational ties along the journey. Some researchers have founded data which argues family-owned SME are more likely to stay in the domestic market compared to nonfamily-owned SME (Graves & Thomas, 2006). Pinho (2013) point out that the linkage between internationalization and social capital could be analyzed from the exporter-intermediary relations. The main argument emphasize that it takes time and other crucial resources to build strong relations with the foreign partners that are very important for successful export activities and therefore SME companies rather use those often limited resources on other domains. Pinho (2013) also highlight the earlier research of Nahapiet and Ghoshal (1998) as the key factor in relational social capital in order to create mutual cooperation and commitment is based on trust.

Peiris et al. (2012) have combined the list of International Entrepreneurship (IE) peer-reviewed articles published since 1993 to 2012. The content of the list pinpoint what key words have been used within the context of IE and it covers totally 291 journal articles which have contributed both theoretical frames and empirical findings to IE field of science. Authors collected the data not only from the top journals linked with IE but from various fields of business science (Peiris et al., 2012). Concerning this research the importance is to search usage of networking theory and social capital articles and separately networking capability articles on those journals. The findings of Peiris et al. pinpoint the number of articles linking networking theory and social capital to IE was 49 which determine the importance of the topic. Both social and business networks are widely researched whereas NC was highlighted as one of the entrepreneurial competences having an effect on internationalization among other listed competences. Frequency of NC mentioned in articles was 20. According to authors’ academic interest towards IE began in early 1990s as those years changed the world rapidly allowing new firms to internationalize and there was a need for new field of scientific research (Peiris et al., 2012). They define the term of IE as “the cognitive and behavioral processes associated with the creation and exchange of value through the identification and exploitation of opportunities that cross national borders.”

As Becker (1964) defined human capital as skills, knowledge, ideas, information and health of an individual there is a linkage between human capital and international entrepreneurship in a form of internationalization of SME. Each country have certain governmental or non-governmental organizations that provide assistance and support to SME on different phases of the internationalization process. One of these global organizations is Chamber of Commerce which provides assistance to their members therefore it requires each interesting company to seek for membership and pay the annual membership fee (Fisher and Reuber, 2003). By participating the provided training of for example Chamber of Commerce an entrepreneur can receive new knowledge, skills, information and ideas concerning different phases and models of internationalization which Becker (1964) defined as human capital. There is also another factor of human capital influencing the internationalization process of SME. Many research groups have examined the impact of managers or business owners past international experience on development of their company international behaviors (for example Reuber and Fisher, 1997) Past experience (skills) have been measured by years a person has either lived or worked abroad which might effect on the success of exporting activities (Reid, 1981). Reuber and Fisher (1997) argue that the most important factor is the past experience on developing international markets for a certain company. The findings of Gimeno et al., (1997) concerning past experience influence the decision making process of an entrepreneur in his or her company which back the argument of Reuber and Fisher (1997). There are two interrelated factors that illuminate findings of (Gimeno et al., 1997; Reuber and Fisher, 1997) to be precise. At first we are individuals and we learn by doing so if the entrepreneur of SME have done some development of international markets in his or her previous work history they have gained new skills and made valuable contacts which reduce the uncertainty and make decision making clearer concerning topics of internationalization of their company. They could take a shorter route to success on export activities compared to their rivals lacking the experience who might go for try and error route (Reuber and Fisher, 1999). The latter factor is that experience matter also on the chosen strategy or so called “the dominant logic” of the company (Bettis and Prahalad, 1995). If the exporting activity is in the heart of the SME the management or the owner pays more attention to the internationalization and focus the possibility of growth that could be the effect of the internationalization mode of exporting (Fisher and Reuber, 2003).

Not only skills and knowledge have been under the research linking human capital to internationalization of the SME since some researchers point out the importance of education in a form of a professional degree influencing the thinking process of an entrepreneur (Kundu and Katz, 2003). The argument of Kundu and Katz (2003) is that an entrepreneur with professional degree and education is looking for opportunities wider compared to an entrepreneur without professional degree. M.R. Evald et al. (2011) continue the argument of Kundu and Katz (2003) stating that education level of the business owner not only influence on operative performance on globalization of business processes but also to thinking process and set strategy of the company.

2.5 Theoretical Framework of Intangible Capital Iceberg

The theoretical framework of this Thesis is based on the literature presented above. The following empirical part after the methodology is focusing on the importance of the interpersonal networks of the entrepreneur. In this framework the network is Junior Chamber International but at the model it can be replaced and tested by any another interpersonal network matching the set criteria by other researcher or groups. The following empirical part focus on the research problem and the defined research questions (see chapters 1.2 and 1.3) will guide the process of the study and the data gathered from the case companies. Figure 4 shows the theoretical framework for the selected interpersonal network of JCI and the forces of intangible capital and networking capability of members that influence the operations of the selected network and how the trust inside among the members can create international entrepreneurship opportunities which have an impact to local community as an end result. Importance is the shared vision, mission and values of the global network. The “intangible capital iceberg” around the selected network show the influencing forces that can provide better business opportunities.

The two lower boxes of the framework are created according to the set limitations of this research so the main theoretical framework is the created theoretical iceberg.

This research is focusing on small and medium-sized companies and their owners who are active citizens and honorary members of selected network. The operations of the company owned by honorary members is fully or partly exporting either products or services directly or indirectly. This research is set to have a global perspective according to how JCI network has divided the world to different areas and each area is having one case study at this research.

This research is creating something new as the selected network has never been researched so deeply before in the business and social science research and therefore is a pilot research not only for the academic world but it also serve internal report to selected network of their community impact globally in the selected countries with the set limits of this research.

As the model is called as “intangible capital iceberg” it is defined by the visible upper triangle and the central connection box since the two lower boxes are only valid on this research or can be stated to be underwater part of the iceberg. There are of course other topics to uncover from the selected network by academic research in future by many fields of researchers who can test the created framework by choosing other interpersonal network to find out whether the framework match or not if the influencing forces remain the same.

Figure 4 Theoretical Framework of Thesis by Author "Intangible Capital Iceberg"