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UNIVERSITY OF EASTERN FINLAND Faculty of Social Sciences and Business Studies Department of Business
MOTIVES AND BARRIERS FOR SMEs INTERNATIONALIZATION
International Business and Sales Management Master’s thesis Anna-Maija Torniainen 284685 maijato@uef.fi
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FOREWORD
The long and multi-step journey of this Master´s Thesis is coming to an end. This Master´s Thesis has been created between the past autumn 2020 and summer 2021. The process has been instructive yet at times challenging. I want to thank Suomen Ulkomaankaupan Edistämisrahaston Säätiö for the grant support for the implementation of the thesis.
Secondly, I want to thank the instructor of my thesis DSc. Irina Mihailova for the guidance and support throughout the thesis process. In addition, I want to thank the company representatives for taking part in this study – without you, this would not have been possible.
Anna-Maija Torniainen Department of Business University of Eastern Finland
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ABSTRACT
UNIVERSITY OF EASTERN FINLAND Faculty of Social Sciences and Business Studies Department of Sales Management
Torniainen, Anna-Maija, T.: Motives and Barriers for SME Internationalization Instructor: DSc. Irina Mihailova
September 2021
Keywords: SMEs, Internationalization, Motives, Barriers Abstract:
This Master´s thesis advances SME internationalization research by supplementing existing knowledge with regards to SME motivation for internationalization.The Master´s thesis aims to identify the key factors triggering SMEs’ internationalization, and those that discourage SMEs to expand. There is a gap in the research examining the phenomenon of why SMEs are not internationalizing and more specifically, what the motives and barriers behind taking the steps towards international markets are. Consequently, the research problem guiding this study is “Why SMEs from small and open markets are not motivated to internationalize”.
The empirical study is conducted by applying case study research to gather evidence from SMEs in South Savo region, Finland. The research findings enabled to identify the motives and barriers for internationalization. Specifically, the results of the research indicate that the motives and barriers of internationalization have sectoral differences, yet many similarities. Companies embarking on internationalization are characterized by a common need for financing and access to resources. Conversely, the motivational drivers’ themes for internationalization that arose from the research were seek of growth, increasing the competitiveness and the effects of personal background and personal motivation towards internationalization. Furthermore, as a positive driver for internationalization, partners, arises from the results.
The results of the research can be exploit in finding ways to motivate SMEs to consider expanding to global markets by learning about the motivation factors and identifying specific barriers of internationalization. Although the case study indicated common motivation factors towards the internationalization of the SMEs, it can be concluded that the motivation of SMEs towards internationalization can be encouraged and increased by offering internationalization support services, such as funding and in general, providing the help and networks for internationalization.
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ABSTRACT
ITÄ-SUOMEN YLIOPISTO
Yhteiskuntatieteiden ja kauppatieteiden tiedekunta Kauppatieteiden laitos
Torniainen, Anna-Maija, T.: PK-yritysten kansainvälistymisen motiivit ja haasteet Ohjaaja: DSc. Irina Mihailova
Syyskuu 2021
Avainsanat: Pk-yritys, kansainvälistyminen, motiivit, esteet Abstrakti:
Tämä Pro gradu -työ täydentää pk-yritysten kansainvälistymistutkimusta täydentämällä olemassa olevaa tietoa pk-yritysten motivaatiosta kansainvälistymiseen. Tarkoituksena on tunnistaa keskeiset tekijät, jotka vaikuttavat pk-yritysten kansainvälistymiseen, erityisesti ne, jotka estävät pk-yrityksiä laajentumaan. Opinnäytetyössä tarkastellaan motivaatiotekijöitä ja niiden roolia kansainvälistymisessä pk-yritysten näkökulmasta Etelä-Savon seudulla. Tutkimusvajetta on siinä, miksi pk-yritykset eivät kansainvälisty ja tarkemmin siinä, mitkä ovat motiivit ja esteet kansainvälisten markkinoiden edistämiselle alueella. Tästä syystä tätä tutkimusta ohjaava tutkimusongelma on "Miksi pienten ja avoimien markkinoiden pk-yritykset eivät ole motivoituneita kansainvälistymään".
Empiirinen tutkimus kohdentuu Etelä-Savon seudun pk-yrityksiin. Tutkimustulosten avulla pystyttiin tunnistamaan kansainvälistymisen motiiveja ja esteitä. Tutkimuksen tulokset osoittavat erityisesti, että kansainvälistymisen motiiveilla ja esteillä on alakohtaisia eroja, mutta monia yhtäläisyyksiä. Kansainvälistymistä aloittaville yrityksille on ominaista yhteinen rahoitustarve ja resurssien saatavuus. Kansainvälistymisen motiiveja olivat kasvun tavoittelu ja kilpailukyvyn lisääminen. Tuloksista käy ilmi myös henkilökohtaisen taustan ja motivaation vaikutukset kansainvälistymiseen sekä kumppaneiden tärkeys kansainvälistymisen positiivisena veturina.
Tulosten perusteella voidaan tunnistaa kansainvälistymisen motiiveja ja esteitä.
Tutkimuksen tuloksia voidaan hyödyntää löytäen tapoja motivoida pk-yrityksiä harkitsemaan laajentumista globaaleille markkinoille oppimalla motivaatiotekijöistä ja tunnistamalla kansainvälistymisen erityisiä esteitä. Vaikka tapaustutkimus osoitti yhteisiä motivaatiotekijöitä pk-yritysten kansainvälistymiselle, voidaan päätellä, että pk-yritysten motivaatiota kohti kansainvälistymistä voidaan kannustaa ja lisätä tarjoamalla tarvittavia kansainvälistymisen tukipalveluja, kuten rahoitusta ja tarvittavaa apua ja verkostoja kansainvälistymiseen.
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CONTENTS
1 INTRODUCTION ... 8
1.1 Background of the research ... 8
1.2 Aim of the study and research questions ... 12
1.3 Study structure ... 13
2 LITERATURE REVIEW ... 15
2.1 Theories of Internationalization ... 15
2.2 Motives towards internationalization ... 17
2.2.1 Internationalization factors ... 18
2.2.2 Proactive and reactive motives ... 20
2.2.3 Intrinsic, extrinsic, and mixed motives ... 22
2.2.4 Motives initiating the engagement of SMEs in the internationalization process ... 24
2.3 Barriers for Internationalization ... 25
2.3.1 Classification of internationalization barriers ... 27
2.3.2 Barriers hindering internationalization initiation... 29
2.3.3 Barriers hindering the further process of internationalization ... 30
2.4 Proposed framework about the factors affecting motivation towards internationalization . 31 3 INTERNATIONALIZATION OF FINNISH SMES ... 32
3.1. Patterns of Internationalization ... 33
3.2 The roles of SMEs in the Finnish economy ... 35
3.2.1 SMEs in South Savo region ... 36
4 METHODOLOGY, DATA AND ANALYSIS METHOD ... 37
4.1 Research approach ... 37
4.2 Data collection ... 39
4.3 Data analysis ... 41
4.4 Description of the case companies ... 44
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4.5 Validity and reliability of the research ... 45
6 EMPIRICAL ANALYSIS AND ITS RESULTS ... 47
6.1 Company U ... 47
6.2 Company V ... 55
6.3 Company X ... 60
6.4 Company Y ... 66
6.5 Company Z ... 72
6.6 Key findings and significance ... 81
6.2.1 Discovered Motives for Internationalization ... 83
6.2.2 Discovered Barriers for Internationalization ... 86
6.2.3 Experiences of the Internationalization support services ... 89
6.3 Summary of the empirical research ... 92
7 DISCUSSION AND CONCLUSIONS ... 94
7.1 Contributions of the research ... 94
7.2 Assessment and limitations of the research ... 100
7.3 Further research potential and practical advice ... 102
REFERENCES ... 104
APPENDIX 1. CASE QUESTIONNAIRE ... 113
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TABLES AND FIGURES
List of Tables
Table 1: Comparison of Internationalization theories ... 15
Table 2: Major Motives for starting export ... 21
Table 3: Motivations for Internationalization ... 23
Table 4: Entrepreneurship in Finland ... 36
Table 5: Data Collection Methods for Qualitative Research ... 40
Table 6: Checklist for Researchers Attempting to Improve the Trustworthiness of a Content Analysis Study ... 42
Table 7: Key characteristics of the companies ... 44
Table 8: Duration of interviews ... 45
Table 9: Key findings ... 82
List of Figures Figure 1: The business network internationalization model ... 17
Figure 2: Internationalization factors ... 19
Figure 3: Theoretical framework of the study ... 31
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1 INTRODUCTION
1.1 Background of the research
Small and medium sized companies (SMEs) are facing new challenges in the operational environment. In times of unknown changes such as the global pandemic of COVID-19 has created, the vitality and growth of SMEs is not only important for the SME survival but for the whole economies around the globe. As the European economy has faced difficulties and challenges over the past years, the role of the SMEs sector as a driver of growth throughout the EU has become more and more important (Burca-Voicu & Maniu 2014).
New growth is yet needed in our regions that are constantly trying to find ways to develop the area vitality. Although changes in the domestic and global markets may bring difficulties for SMEs, they can conversely create new growth and innovation possibilities and motivate the companies to reach for new, global markets.
Internationalization affects companies of all sizes (Al-Hyari et al. 2012). These days SMEs face international competition and need to stay competitive as the globalization has presented new challenges due to the increased competition in the markets (Naradda et al.
2019). There are many general pressures increasing internationalization, as barriers to international trade, investment and migration are all lower than they have been in recent decades (Johnson et al. 2014). This leads us to the fact that today, internationalization of SMEs is not a new phenomenon (Bowen 2019). During the last decades, many SMEs have successfully set up activities in foreign markets and their role is increasingly important in contributing to future growth (Gjellerup 2000).
The beginning of internationalization research in the late 1950s and 1960s focused on large multinational companies and their international activities (Ruzzier et al. 2006). During the last decades, SMEs have been very important players in national economies. Still until 1970s, the research of internationalization of companies focused on large enterprises rather than SMEs. The reasons were related to small companies being local but also the fact that
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small companies were not interested about going international. However, over time behaviours of SMEs towards internationalization as well as researchers’ attitudes towards internationalization have changed. (Daszkiewicz and Wach 2012.)
Internationalization as a phenomenon has been intensively researched over the last few decades from different viewpoints (Ruzzier et al. 2006). Mature multinational corporations (MNCs) have played a dominate role in earlier business literature, whereas SMEs and especially their internationalization have later attracted wider interest (Miesenbock 1988).
According to Casado-Belmonte et al. (2020), the research focusing on the process of SME internationalization has thrived during the last decades. Since the 80s, more and more theoretical articles have been published with the aim to analyze the procedures and approaches towards SME internationalization, focusing particularly on the resource constraints they face (Casado-Belmonte 2020). According to Ribau et al. (2018) the topic of SME internationalization is comparatively new. Even though multiple studies have analysed the SME internationalization literature, a complete comprehension needs developing in various dimensions. The theoretical and methodological bases of SME internationalization knowledge are growing, but the field is still fragmented. (Ribau et al.
2018.)
As mentioned, the internationalization of SMEs has been studied from multiple perspectives. Morais & Ferreira (2020) stress out that there are diverse approaches around the internationalization process of SMEs that has created different lines for the research.
This has resulted in literature that has taken on comprehensive and fragmented dimensions due to the range of subjects and issues under study (Morais & Ferreira 2020.) According to Müjdelen et al. (2014), SME internationalization has been researched from numerous views. Ruzzier et al. (2006) refer that factors such as international decision-making and management, the development of international activities, and factors favouring, or disfavouring internationalization have been studied for both larger as well as small businesses (Ruzzier et al. 2006).
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As a research subject, the competitive advantage of SME has been recognized as an important topic for researchers dealing with SME internationalization (Falahat et al. 2020).
Ruzzier et al. (2006) describe that the research has focused on SMEs' internationalization from the perspective of the firm's international activities or operations by applying product, operation, and market analyses or network analyses. According to Ribau et al (2018), the study of SME internationalization has attracted interest progressively because of the relationship between SME competitiveness and increased productivity, flexibility, and an active presence in the global market. With the global unification of economic environments and various factors driving globalization and internationalization of companies with SMEs becoming the anchors of economic growth and change, SME internationalization research will remain as one of the most important research areas (Ruzzier et al. 2006). The future research in internationalization of companies should focus on deepening understanding on early and rapid adopters of internationalization, who represent a pervasive, ongoing trend.
Similarly, as the international business field considerably developed from theorizing the MNE, newer forms of internationalizing companies invite solid theorization. (Knight &
Liesch 2016.)
Internationalization presents opportunities yet exposes challenges for SMEs. Until now, we have been discussing the SME internationalization literature in a broader aspect. In the research of this Master´s Thesis, the focus of the research is in the motivation factors and barriers of SMEs internationalization. According to van Tulder (2015), in international business (IB) journals internationalization motives are seldom specifically discussed, generally classified according to one theory, or taken as a control variable in otherwise quantitative studies. Van Tulder (2015) claims that motivations are presupposed. The focus of extant studies is on “how” and “what” companies internationalize rather than on “why”
they internationalize. This is significant as an accurate classification of internationalization motives lies at: why do companies internationalize in the first place. (van Tulder 2015.)
The motives and barriers of SME internationalization is a current research topic. Katsikeas
& Piercy (1993) have stated that the scientific literature of the main motives of internationalization distinguishes multiple broad areas: decision-maker characteristics,
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firm-specific factors, environmental factors, and firm characteristics (Katsikeas & Piercy 1993, cited in Korsakiene & Tvaronavičiene 2012). To point out, according to Korsakiene (2015), multiple scholars have noted that the barriers to entry are significantly higher for SMEs than for larger firms (Korsakiene 2015). Export barriers have been a researched topic for decades. Although the first studies on the export barriers appeared in the mid-1960s, the thrust of research effort occurred in the 1980s and 1990s. Most studies had a one-time nature, with longitudinal research being very rare. The overwhelming majority of studies had an ethnocentric orientation, with only a few studies researching export barriers on a cross-cultural basis. Most research took place in North America and Europe and the research covered a wide range of industrial sectors, ranging from manufacturers of consumer products to producers of industrial goods. Most studies examined many and diverse industries simultaneously. (Leonidou, 2004.)
Studies focusing on barriers of internationalization distinguish broad areas, such as financial, managerial, market oriented (including both national and international markets), and characteristics of industry and company (Leonidou 1995; Morgan 1997). It has been agreed that barriers of internationalization exist at any stage of internationalization process.
On the other hand, barriers may differ in intensity depending on the level of internationalization of the individual company (Cavusgil 1984a; Katsikeas & Morgan 1994, cited in Korsakiene & Tvaronavičiene 2012). In earlier theoretical studies the starting point has often been that resources and capabilities acquired by an entrepreneur have an important impact on the ability to enter foreign markets. The main underlying premise adopted by scholars is that SMEs often lack resources and capabilities that restrains the possibility to capture business opportunities. (Korsakiene 2015.)
Globalization is making it more necessary for companies to operate internationally leading to the fact that the pulling and hindering factors to this process are an interesting subject to research. Exploring the factors related to internationalization or non‐internationalization of companies is of high importance for regions, because it affects their competitiveness.
(Mueller‐Using et al., 2020.) It has been discovered that international SMEs can act as driver for technology development and innovation. According to Kyvik (2011) many
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scholars have annotated on the increasing evidence of small companies that are internationally active and recognized how they can be entrepreneurial engines for new technologies and product innovation. For these reasons too, it is important to examine the forces that motivate but also hinder the internationalization of small and medium-sized companies. (Kyvik 2011.)
1.2 Aim of the study and research questions
This Master´s Thesis aims to identify the key factors affecting SMEs’ internationalization, in particular those that discouraging drive of SMEs to expand. The empirical research examines the motivation factors and their role in internationalization from the perspective of small and medium-sized companies in South Savo region, Finland. There is a gap in the research examining the phenomenon of why SMEs are not internationalizing and more specifically, what the motives and barriers behind taking the steps towards international markets in the regional area. Consequently, the research problem guiding this study is “Why SMEs from small and open markets are not motivated to internationalize”.
The research gap of the research will be addressed as research questions, which have not been addressed properly. According to Farooq (2018), exploring the research gap is one of the most difficult functions for researchers who are at the preliminary stage of their research (Farooq, 2018). The research problem of this study is addressed by focusing on the following research questions.
Research question
Why SMEs from small and open markets are not motivated to internationalize?
Sub-questions
RQ1) What forces influence (hinder) the motivation for international expansion of SMEs?
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RQ2) How these forces influence the motivation for internationalization?
There is a gap related to understanding why companies, especially from small advanced markets, would not like to expand abroad. The empirical study is conducted by using evidence from SMEs in South Savo region to examine why they do not perceive conventional incentives for internationalization as attractive. For this purpose, the study concentrates in investigating the role and factors of motivation in the internationalization process of companies that have internationalized around South Savo region, Finland. The empirical data is collected by implementing interviews. The interviews are conducted with SMEs that have recently (under 5 years ago) entered or are currently entering the international markets. The case companies are selected carefully in a way that they bring valuable data concerning the research phenomenon. This Master´s thesis advances SME internationalization research by supplementing existing research of the area of SME motivation for internationalization.
1.3 Study structure
The Introduction part of the Master´s Thesis introduces the background and goals of the study and presents a description of the research done in the field of study. In the introduction part, the research gap and problem are presented. Lastly, the study structure is explained for the readers to have an overview of the thesis work.
The Literature review part gives an overview of the research subject. The literature review addresses the research questions by giving a wide overview of the researched phenomenon.
Main contents consist of theories behind why and how companies internationalize. First, we have a look at some theories of internationalization. After this, motives and barriers towards internationalization are presented. Finally, the theoretical framework of the study will be presented.
SMEs play a crucial role in economies and are the focus of this research. The chapter Internationalization of SMEs gives a review of SMEs and SME internationalization. In
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addition, the chapter presents patterns of internationalization from the perspective of Finnish SMEs. In addition, the chapter presents the paragraph “Role of SMEs in the Finnish economy”, which gives a brief overview of the research’s target group, Finnish SMEs.
Lastly, the chapter offers information about the SMEs in South Savo region.
Methodology part discusses how the study has explored the research questions in practice.
The chapter focuses on describing the methodological issues related to the research. The chapter explains the research paradigm of the case study and the arguments behind the decisions of the chosen research methodology. The chapter starts with describing the research approach and continues to descriptions of the data collection and analysis methods. Lastly, the validity and reliability of the research are analyzed in the methodology part.
The part of Empirical analysis concentrates in presenting the five case companies and the key findings of the qualitative research. The chapter begins with an in-depth description of the implemented interviews with the companies. After this, the results of the empirical analysis are presented.
Discussion and Conclusions part summarizes and discusses the research findings and their significance. In addition, theoretical contributions to the previous international literature, managerial implications, research limitations and recommendations for future research are presented.
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2 LITERATURE REVIEW
The following literature review will initiate the theoretical part of this research.
2.1 Theories of Internationalization
Research concerning the internationalization of new and/or small firms has a long history (Autio 2017). The internationalization of a firm has been one of the key areas studied in international business research (Laanti et al. 2007). This paragraph presents three relevant internationalization theories: the Uppsala model, Network theory and IE models (see Table 1). These models are relevant when we investigate the internationalization process of SMEs and aim to answer the question “how companies internationalize” (Shahzad 2019).
Table 1. Comparison of Internationalization theories (Adapted from Shahzad, 2019).
Uppsala view Network view IE view
A development of continuing international engrossment with developing market
knowledge and commitment of assets.
Internationalization is the utilization of network benefit.
Relationship of a firm can be used as connections to other
networks.
Preemptive internationalization procedure and entrepreneurial
mind-set and activities in bringing new openings.
The Uppsala model is a micro-level tool of analysis that essentially provides a holistic explanation of a firm evolution (Vahlne & Johanson 2017). In the Uppsala approach, firms internationalize incrementally from physically and culturally close foreign business markets to more distant countries (Glowik 2016). The original Uppsala model was published in 1977 to explain the internationalization process of firms (Vahlne & Johanson
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2017). In the original model, Johanson and Vahlne (1977) analyzed internationalization as an incremental, gradual, learning-based process, which supports cumulative market commitment starting from psychically close markets. In their subsequent contributions, Johanson and Vahlne (1990, 2003, 2009) shifted from the relatively atomistic and firm- centric perspective, to a more business network one. According to Johanson and Vahlne, (2009) & Schweizer (2013), the revised model sees internationalization as a process pursued in a network and posits the network relationships of firms as providing a potential for learning, building trust, and commitment. (Yamin & Kurt 2018.) Today, the Uppsala model is still relevant for SME's context, which has received a lot of criticism because not all SMEs are born globals in nature (Shahzad 2019).
In the network view, internationalization is seen as the utilization of network benefit (Shahzad, 2019). In the Johanson and Vahlne model (2009), internationalization is seen as the result of opportunity-seeking efforts made by the focal firm to improve or defend its position in networks. In their model, such efforts relate in some way to one or more partners, so that what happens, happens in relationships. There are two types of variables in the business network internationalization process model (see Figure 1). The first category is knowledge, stating that the more knowledge firms have about each other, the closer their relationship is. The second category, the network position, refers to a focal firm with a good network position enjoying a beneficial exchange with its partners. In addition, there are two types of variables in the model: state and change, each consisting of two categories. The first state variable category is knowledge, especially of opportunities, but also of the capabilities and resources of other actors. It refers to the more knowledge firms have about each other, the closer their relationship is. The second state variable category is the network position, which refers that a focal firm with a good network position enjoys a beneficial exchange with its partners. One of the change categories keeps inside the elements of learning, creating, and trust building. The other change variable category, relationship-commitment decisions, is, to increase or decrease the level of commitment of potential partner. It is through these decisions that a firm establishes itself in a network.
(Schweizer et al. 2010.)
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State Change
Knowledge opportunities
Relationship commitment
decisions
Network position Learning
Creating
Trustbuilding
Figure 1. The business network internationalization process model (Adapted from Johanson and Vahlne, 2009: 1424).
Gabrielsson & Pelkonen (2008) stress out that the founder of the company plays a central role in the internationalization process. According to Shahzad (2019), in International entrepreneurship view, it is seen that entrepreneurs have a clear global mindset and they often start born global enterprises. In contrast to the Uppsala model, this approach focuses more on rapid internationalization. International entrepreneurial orientation is considered a behavioral trait shared by business entities that start out seeking to attain a competitive advantage by expanding their business operations in several parts of the world. (Shahzad 2019.)
2.2 Motives towards internationalization
Although since the 1970s the internationalization process of the firm has been well researched, the behavior of firms prior to internationalization has not received proportionate research attention (Tan et al. 2007). According to Kraus et al. (2017), ever since research on the internationalization of companies emerged, the motivation for going
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international has also been of scholarly interest. There is a great importance in investigating the reasons behind SMEs internationalization decisions. It has been said that a company’s internationalization is inseparably linked to the motives of internationalization (Benito 2015). According to SME Observatory (European Commission, 2007) the primary motivation for SME internationalization include SMEs wishing to enhance their competitiveness and having an intention to get access to new, larger markets (Daszkiewicz
& Wach 2012). Whatever companies do beyond the boundaries of their home country, they do for a reason, meaning the internationalization is purposeful and goal oriented. (Benito 2015.) In most companies, the fundamental reason for exporting is to make money.
Conversely, one reason alone rarely accounts for any given action as generally, a mixture of factors results in companies taking steps towards international direction (Hollensen 2017.)
2.2.1 Internationalization factors
The key one in many theoretical approaches is the assumption that internationalization process of a firm is specified by its growth (see Figure 2). If the owner-manager of a company is oriented for company growth, they may try to enter foreign markets.
Meanwhile, so-called push factor relates to disability of a firm to achieve growth in domestic market. The push factor is sometimes described as negative factor, forcing the company to leave the competitive market, as the pull factor is about perceiving an opportunity in foreign markets or takes place when the demand for a product of the company appears just in the foreign market. Pull factor is sometimes referred as a positive factor. In turn, the chance factor relates to exploiting of appearing opportunities in a foreign market. However, it must be pointed out that from all the mentioned internationalization factors, the most important one is the entrepreneurial factor, as without it the functioning of the other factors would not be possible. (Daszkiewicz & Wach 2012.)
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Figure 2. Internationalization factors (adapted from Daszkiewicz & Wach 2012, 15).
Another source of motivation besides the access to new markets is the development of the company. To become competitive, SMEs try to improve the innovative potential to introduce new products and services to the market. Thanks to the use of international resources, SMEs improve their competitiveness, getting access to international competence and resources, international business relations and capital from foreign markets. The access to know-how and technologies favors internationalization, on the other hand SMEs undertake export activities to acquire knowledge or technology. It is worth to stress that access to know-how and technology is a frequent argument among companies which are only involved in imports and it is the second most important motivation quoted by SMEs which use more sophisticated forms of internationalization. Internationalization is a way to acquire know-how and insight into new technologies to strengthen the competitive position of the firm. It is then a form of widely conceived innovativeness. (Daszkiewicz &
Wach 2012.)
Entrepreneurial factor
(seeking growth)
Push factor
(shortage of opportunities on domestic market)
Pull factor
(see potential opportunities on foreign markets)
Change factor
(appropriate circumstances on foreign markets)
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2.2.2 Proactive and reactive motives
According to Pett et al. (2004), proactive SMEs seemingly view internationalization optimistically as an opportunity mainly as some internal advantages exists. This type of internal advantage might allow an SME to successfully utilize a new international market and enable to operate from a position of strength. The internal advantage might arise from proprietary market knowledge, skills and know-how, technology, or a successfully differentiated and unique product (Pett et al. 2004.) Hollensen (2017), presents a framework for proactive and reactive motives for internationalization. Proactive motives represent stimuli to attempt strategy change, based on the firm’s interest in exploiting unique competences (e.g. a special technological knowledge) or market possibilities. The proactive motives have been classified the following way (see Table 2).
Profit and growth goals refer to the desire for short-term profit, which is especially important for SMEs that are at the stage of an initial interest in exporting. The desire to grow may also be of importance in a firm’s decision to start exporting. Managerial urge reflects the desire, drive, and enthusiasm of management towards global marketing activities. This enthusiasm can exist simply because managers like to be part of a firm that operates internationally. Technology competence/unique product include the fact that many companies believe that their products or services are unique, even though this may not be the case in the international market. If so, however, they can certainly provide a sustainable competitive edge and result in success abroad. In the case of foreign market opportunities/market information, market opportunities act as stimuli only if the company has, or is capable of securing, those resources necessary to respond to the opportunities. As foreign market entry is costly and risky, decision-makers are likely to consider a rather limited number of foreign market opportunities in planning their foreign entry. (Hollensen 2017.) In economies of scale – learning curve, the company exploits the resources and capabilities that base their competitive advantage at home and transfer them abroad, benefiting from economies of scale (Cuervo-Cazurra et al., 2015). Tax benefits may also play a motivating role. They allow the company either to offer its products at a lower cost
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in foreign markets or to accumulate a higher profit. This may therefore tie in closely with the profit motivation. (Hollensen 2017.)
Table 2. Major Motives for starting export (Adapted from Hollensen 2017, 57).
Proactive motives Reactive motives
• Profit and growth goals
• Managerial urge
• Technology competence/
unique product
• Foreign market opportunities/
market information
• Economies of scale
• Tax benefits
• Competitive pressures
• Domestic market: small and saturated
• Overproduction/
excess capacity
• Unsolicited foreign orders
• Extend sales of seasonal products
• Proximity to international customers/
psychological distance
According to Pett et al. (2004) reactive SMEs likely view internationalization as a needful response to disadvantageous conditions in their current markets. This type of disadvantageous conditions may occur as increased competitive pressures, excess capacity given domestic market conditions, or a persistent declining domestic market (Pett et al.
2004.) Reactive motives indicate that the firm reacts to pressures or threats in its home market or in foreign markets and adjusts passively to them by changing its activities over time. A prime form of reactive motivation is reaction to competitive pressures. A company may fear losing domestic market share to competing firms that have benefited from economies of scale gained by global marketing activities. Also, a company may be pushed into exporting, because of a small and saturated home market potential. Another motivation for internationalization is overproduction/excess capacity. If a firm’s domestic sales of a product are below expectations, the inventory can be above desired levels. Behind the unsolicited foreign orders motive, many small companies have become aware of opportunities in export markets because their products generated enquiries from overseas.
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These enquiries can result from advertising in trade journals that have a worldwide circulation, through exhibitions and by other means. As a result, a large percentage of exporting firms’ initial orders are unsolicited. In addition, seasonality in demand conditions may be different in the domestic market from other international markets. This can act as a stimulus for extending sales of seasonal products by foreign market exploration that may result in a more stable demand over the year. Lastly, psychological proximity to the international market can often play a major role in the export activities of a company.
(Hollensen 2017.)
2.2.3 Intrinsic, extrinsic, and mixed motives
Van Tulder (2015) presented a framework for an improved understanding of actual internationalization motives. According to van Tulder (2015), motivation, incentive and decision-making theories generally distinguish between three types of motivations:
intrinsic, extrinsic, and mixed motives. Following this categorization, three clusters of internationalization motives can be delineated. Each of these approaches reveals a specific disciplinary orientation (see Table 3). (van Tulder, 2015.)
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Table 3. Motivations for Internationalization. Adapted from van Tulder (2015, 3).
Type of motive Internationalization motive
Dominant approach
Intrinsic motives Efficiency approaches;
resource based-view;
and learning
-Market-seeking -Efficiency seeking -Resources-seeking -(strategic) asset-seeking
MICRO: INTERNATIONAL MANAGEMENT
Mixed motives Competitiveness and positioning in sector;
co-evolution
-Sector: bandwagon effects, e.g. in country selection;
follow the client; risk minimizing -Monopoly/oligopoly
effects; follow the competitor
MESO: INTERNATIONAL BUSINESS,
INTERNATIONAL STRATEGY, INTERNATIONAL
ECONOMICS
Extrinsic motives Bargaining/negotiation and
game theoretical approaches;
stakeholder approach;
institutions-based view;
bundled resources
-Home: escape motives from home country; strategic extension of home country -Host: high/low barriers to
entry
MACRO: INTERNATIONAL POLITICAL
ECONOMY
Intrinsic motives refer to the efficiency gains to be won and “internalizing” markets across borders. This relates to exploring the resources where they are located and transferring them elsewhere, coordinating asset- or firm-specific advantages of particular locations that are normally unrelated and gaining in efficiency through the integration of closed markets around the world, such as labor markets. Extrinsic motives refer to home- and host-country
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considerations in the motivation to go abroad. Mixed motives could be used as a frame to synthesize intrinsic and extrinsic motives. In practice, they have largely been referred to as the sector dynamics of internationalization. (van Tulder, 2015.)
The focus of van Tulder study (2015) can be more generalized to MNEs. Hence, next we take a closer look at motives initiating the engagement of SMEs internationalization.
2.2.4 Motives initiating the engagement of SMEs in the internationalization process
The increasing internationalization and globalization of business has forced many firms to reconsider what contributes to international success (Rundh, 2007). Internationalization triggers refer to internal or external events taking place to initiate internationalization (Hollensen 2017). Changes in the real world and in the world of ideas have led to a rethinking of internationalization motives. These include the rethinking of location advantage, intra- and inter-firm interactions, developmental implications, and the relevance of particular motives. (Cuervo-Cazurra & Narula, 2015.)
The OECD (2009) reported a review of the top motives for SME internationalization. The key motivating factors for SME internationalization comprised four main motives. Growth opportunities affiliated to international markets identified as a key driver of internationalisation. Knowledge-related motives referred to the suggestion that knowledge assets both push and pull SMEs into international markets. Importance was also found in network/social ties and supply chain links leading SMEs towards internationalisation and expanding the internationalisation processes. In addition, domestic and regional market drivers were reported as one of the top motives. According to OECD (2009), there is significance of both internal and external motivations for SME internationalisation.
Growth-related factors and the possession of critical resource factors, including knowledge resources and capabilities seem to be important internal motivators. SMEs are also motivated in their internationalisation decisions by external motivations, including
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networks and supply chain links, social ties, and the sector and region to which they belong.
(The OECD 2009.)
Kubíčková et al. (2014) researched the motives that initiate the engagement of SMEs in the internationalization process yet also to verify which factors may affect the motives for entering a foreign market. The research focused on investigating SMEs from the Czech Republic. The research showed that the most important factors that motivate SMEs to engage in internationalization are the foreign demand for their products, the possibility of customer portfolio enlargement, the lack of demand in the domestic market, the increase in sales, and the competitive pressure in the domestic market. These are the most often mentioned motives by SMEs from all sectors, when not considering their exact ranking.
The research indicated that SMEs are motivated to enter foreign markets by both proactive and reactive motives. The main motives included foreign demand for company products, possibility of customer’s portfolio enlargement, lack of demand in the domestic market, increase in sales and competitive pressure in the domestic market. Moreover, it was found that micro-enterprises as well as small enterprises are motivated primarily by the foreign demand for their products (reactive motive). On the contrary, the most often mentioned motive for entering foreign markets by medium-sized enterprises was the increase in sales (proactive motives). The findings also imply that the bigger the enterprise is, the more likely it will be driven to engage in internationalization by proactive motives at the expense of reactive motives. (Kubíčková et al. 2014.)
2.3 Barriers for Internationalization
According to Kraus et al. (2017), internationalization is a common growth strategy for SMEs. However, SMEs face several challenges within the process of internationalization.
According to Winch & Bianchi (2006), for many SMEs the challenge of going global brings along another dimension of challenge to SMEs already difficult environments.
Kraus et al. (2017) explains that as SMEs are characterized by limited resources, managers are constantly involved in a decision-making process concerning the allocation of the
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SMEs’ resources. Therefore, internationalization can be understood as a complex, multidimensional decision process. (Kraus et al. 2017.) According toLópez González &
Sorescu (2019), it is important to ask what companies and policymakers can do to promote further SME integration into global markets.
For many companies, internationalization poses challenges and difficulties. According to Khojastehpour and Johns (2014) a variety of barriers to successful export operations can be identified. Some problems mainly affect the export start, as others are encountered in the process of exporting. Leonidou (2004) stated that barriers to exporting refer to all those constraints that hinder the firm’s ability to initiate, to develop, or to sustain business operations in overseas markets. According to López González & Sorescu (2019), SMEs face many challenges in internationalization, both internal and external. Internal challenges relate to factors such as the lack of scale or experience, low productivity and lagging adoption of technology. External challenges relate to the environment companies encounter when getting products to foreign markets. (López González & Sorescu 2019.) Leonidou (2004) classified export barriers as internal, barriers associated with organizational resources/capabilities and company approach to export business, and external, barriers stemming from the home and host environment within which the firm operates. (Leonidou 2004.) According to Karagozoglu and Lindell (1998), the main barriers of internationalization keep inside the lack of managerial knowledge and competence, and the importance of personal factors like international business skills and perceptions of the environment (Winch & Bianchi 2006).
According to Czinkota & Ronkainen (2010), internationalizing companies need to actively adapt to the changing global environment to succeed. Internationalizing companies must encounter distribution systems, pricing, and address ethical issues such as legal systems related to monitoring pollution, maintaining a safe work environment, copying of technology or trademarks, and dealing with demands for bribes. (Czinkota & Ronkainen 2010.) The incremental character of internationalization (according to the Uppsala model) is largely attributed to a lack of market information. This lack of market information will strongly influence the manager’s perceived psychic distance from the home country to the
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host country. Increasing the foreign market knowledge will decrease the psychic distance.
However, the distortion of information transmission associated with psychic distance implies the necessity of trust development. This means that trust plays a crucial role in overcoming the challenges to successful international relationship building to the foreign partners. (Khojastehpour and Johns, 2014.)
According to Fliess & Busquets (2006), there are several factors indicating why SMEs are more exposed to the effects of internationalization barriers than larger companies. Larger companies occupy the resources to leverage internationalisation risks in several ways, such as by diversifying operations, possessing in-house trade or international departments, creating economies of scale, and strongly lobby for favourable laws and regulations. Often, SMEs have limited resources and a lower capability to absorb risks, especially when operating in extremely competitive markets. When trade barriers occur, SMEs might have to bypass a market, giving up the opportunity to grow the business. This leads to becoming more prone to increasing import pressure in the home market. (Fliess & Busquets 2006.)
2.3.1 Classification of internationalization barriers
According to Shaw and Darroch (2004) there have been a number of studies, which have focused on the barriers to internationalization by exporters and/or non-exporters in general (e.g. Morgan, 1997). Much less attention has, however, been paid to the perception of barriers to internationalization by smaller, more entrepreneurial firms. (Shaw and Darroch, 2004.)
According to Morgan (1997), the barriers to internationalization can be classified into five areas: financial, managerial, market based (including domestic and international markets), industry specific and firm specific. Morgan (1997) stated, that it is widely recognized that the barriers to internationalization can exist at every stage in the process of internationalization (Morgan, 1997). Leonidou (2004) presented a comprehensive analysis of 39 export barriers extracted from a systematic review of 32 empirical studies conducted
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on the subject. These have been classified into internal (incorporating informational, functional, and marketing) and external (comprising procedural, governmental, task, and environmental) barriers. (Leonidou, 2004). The next chapters involving internal and external barriers base on the authors analysis of export barriers.
According to Leonidou (2004), internal barriers to internationalization are those difficulties that relate to organizational resources and capabilities. There are three types of internal barriers, which are identified as informational barriers, functional barriers, and marketing barriers. Informational barriers refer to problems in identifying, selecting, and contacting international markets due to information inefficiencies. Four barriers fall under this category: locating/analyzing foreign markets, finding international market data, identifying foreign business opportunities, and contacting overseas customers. Functional barriers relate to inefficiencies of the various enterprise functions, such as human resources, production, and finance, with regard to exporting. This category contains four barriers relating to limitations in managerial time, inadequacies in export personnel, unavailable production capacity, and shortages of working capital. Marketing barriers deal essentially with the company’s product, pricing, distribution, logistics, and promotional activities abroad. (Leonidou, 2004.)
Leonidou (2004) separates external barriers into procedural, governmental, task, and environmental barriers. Procedural Barriers focus on operating aspects of transactions with foreign customers and include three items: unfamiliarity with techniques/procedures, communication failures, and slow collection of payments. Governmental barriers pertain to actions or inaction by the home government in relation to its indigenous exporters. Here, the emphasis is on two problem areas: (1) the limited interest shown by the government in assisting and in providing incentives to current and potential exporters; and (2) the restrictive role of the regulatory framework on export management practices. Task barriers focus on the firm’s customers and competitors in foreign markets, which can have an immediate effect on its export operations. Environmental barriers category incorporates barriers referring primarily to the economic, political–legal, and sociocultural environment of the foreign market(s) within which the company operates or is planning to operate. These
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barriers usually are subject to rapid changes and are very difficult to predict and control.
(Leonidou 2004.)
According to the OECD (2009) the following are categorized as top barriers for SME internationalization. The first barrier, highlighted as the lead barrier, is the shortage of working capital to finance exports. This refers to limitations in finance. The second barrier is the limited information to locate/analyze markets. Insufficient knowledge of foreign market also emerged as a top barrier. The third barrier, inability to contact potential foreign customers is also highlighted as a top barrier. The last barrier, lack of managerial time, skills and knowledge, refers to having limited managerial knowledge. This factor was also identified as a lead obstacle for internationalization of SMEs. (OECD 2009.)
2.3.2 Barriers hindering internationalization initiation
According to Mueller-Using et al. (2020), most studies neglect internal barriers of internationalization. Hollensen (2017), states that critical factors hindering internationalization initiation include mainly internal barrier such as insufficient finances, insufficient market knowledge, lack of foreign market connections, lack of export commitment, lack of capital to finance expansion into foreign markets, lack of productive capacity to dedicate to foreign markets, lack of foreign channels of distribution, management emphasis on developing domestic markets, cost escalation due to high export manufacturing, expenditures, distribution and financing. Inadequate information on potential foreign customers, competition and foreign business practices is a key barrier facing active and prospective exporters. Obtaining adequate representation for overseas distribution and service, ensuring payment, import tariffs and quotas, and difficulties in communicating with foreign distributors and customers are also major concerns. Serious problems can also arise from production disruptions resulting from a requirement for non- standard export products. This will increase the cost of manufacturing and distribution.
(Hollensen 2017.)
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2.3.3 Barriers hindering the further process of internationalization
Critical barriers in the process of internationalization can generally be divided into three groups: general market risks, commercial risks, and political risks, all seen from the company perspective. General market risks include the factors such as comparative market distance, which refers to each additional foreign market creating additional organizational costs, and differences in culture and language increasing the amount of market risks information that managers must collect to manage and coordinate across the foreign markets. Another factor, adaptation to foreign markets refers to the products and services that companies produce abroad which often the same as at home but even in that case, producing and selling abroad involves higher costs than doing it at home. It requires modifications to the production process and marketing mix. General marketing risks also include competition from other firms in foreign markets, adapting products and services to new local conditions, difficulties in finding the right distributor in the foreign market, differences in product specifications in foreign markets and complexity of shipping services to overseas buyers. (Hollensen 2017.)
According to Hollensen (2017), commercial risks include exchange rate fluctuations when contracts are made in a foreign currency, failure of export customers to pay due to contract dispute, bankruptcy, refusal to accept the product or fraud, delays and/or damage in the export shipment and distribution process and difficulties in obtaining export financing.
Political risks result from intervention by home and host country governments. The risks keep inside factors such as foreign government restrictions, national export policy, foreign exchange controls imposed by host governments that limit the opportunities for foreign customers to make payment and lack of governmental assistance in overcoming export barriers. (Hollensen 2017.)
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2.4 Proposed framework about the factors affecting motivation towards internationalization
This chapter provides an understanding of the concept of internationalization and its main factors regarding the study. The collected theoretical framework defines the key concepts relevant in this research. The framework includes the key concepts of theories of internationalization, motives towards internationalization (the classification of motives and motives initiating the engagement of SMEs in the internationalization process) and barriers for internationalization (the classification of internationalization barriers, barriers hindering internationalization initiation). Further, the theoretical framework of the research is developed based on the research questions, research problem and the literature review (see Figure 3).
Figure 3: Theoretical framework of the study
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The chosen theories support the research and the proposed framework about the factors affecting motivation towards internationalization drive the upcoming data collection and analysis. The framework also enables interpreting, explaining, and generalizing the upcoming research findings. To reflect the previous theories and literature used in this Master´s thesis, some conceptions arise. The research topic of SME internationalization is comparatively new although there are already multiple studies in the field of research. The previous literature indicates that the awareness and knowledge of the research subject is growing, however it seems that the field of the research could use some clarification as it seems to be quite fragmented.
The theories and literature indicate that the international business field mostly developed from theorizing the MNE, which leads us to the fact that newer forms of internationalizing companies require solid theorization. SMEs as the backbone of our economies are an important and present topic in today´s research. The internationalization motives and barriers of SMEs is a recent, not that covered research topic that requires special attention in the research field of internationalization. This Master´s thesis advances SME internationalization research by supplementing existing knowledge with regards to SME motivation for internationalization.
3 INTERNATIONALIZATION OF FINNISH SMES
This chapter gives a review of SMEs and SME internationalization in Finland. The chapter presents patterns of internationalization from the perspective of Finnish SMEs and provides information about the role of SMEs in the Finnish economy and South Savo region, the location of the empirical research.
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3.1. Patterns of Internationalization
During the last decades, SMEs have played a crucial role in national economies. Nowadays they seem to be predominant, in terms of employment and job creation. Moreover, SMEs are dynamic and flexible, they adapt quite easily to unstable and risky economic conditions.
(Daszkiewicz & Wach 2012). Small and medium-sized enterprises (SMEs) are the backbone of the European economy. They account for 99 % of all EU businesses.
Internationalization opens new markets for SMEs and has the potential to boost SME competitiveness and growth considerably. (European Commission 2014). The typical European firm is a micro firm. (Daszkiewicz & Wach 2012).
According to the European Commission, the size, age, and experience of SMEs influence their willingness and ability to internationalize. The larger the company, the more it tends to internationalize. Exports and imports tend to increase as an enterprise grows more mature. Very few internationally inactive SMEs are planning to start international activities in the foreseeable future. Some sectors tend to be more suited to internationalization than others. Trade, manufacturing, transport and communication and research are the most international sectors. Companies involved in e-commerce are more internationally active than their traditional counterparts. (European Commission 2014.)
Internationalization is an opportunity for SMEs to grow and succeed. In many industries the domestic market is too small, so growth must be sought abroad. A total of 24% of SMEs in Finland have business abroad. The share varies between industries. SMEs export their products or services most commonly against an invoice without credit insurance. This had been done by 57% of SMEs. Foreign trading partners of Finnish SMEs can be found in the surrounding areas. Nordic countries constitute a very important market, as are the countries of the European Union. (Yrittäjät 2020a.) Going to international markets and succeeding there is a great effort for SMEs. Companies active in foreign trade are more productive than average due to fierce international competition. Internationality in terms of company size differs significantly. In companies with more than 50 persons, approximately 60 per cent of enterprises have international activities. Strongly growth-minded companies are
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also clearly distinguished from the internationalization. In strongly growth-minded companies, international business the share is close to 60 per cent. Among growth-oriented companies, the corresponding share is clearly lower. Similarly, among enterprises that growth targets do not exist, only about 10% have foreign business. Strongly more than a quarter of the number of companies wanting to grow there are also direct exports. The promotion of exports must be at the heart of public authority policy measures and financial contributions, as it is effective a means of supporting growth and employment. (Yrittäjät 2020a.)
Finland is a typical example of a small and developed country that is heavily dependent on international trade. Internationalization is no longer an option. Even though a company operates in the home markets, there are international, big competitors with large resources – these types of companies change the boundary conditions and nature of the competition.
The motives for a company’s internationalization are often linked to money and the desire to grow. However, these are not the only factors that drive companies to international markets as the decision to internationalize is often the sum of multiple factors. The motives for internationalization can be roughly divided into the attractiveness of the target market and the push factors of the domestic market. (Puusa et al. 2014.)
A significant factor in the internationalization of companies can be technological know- how or a unique product or service. On the other hand, economies of scale may act as attractions for internationalization in situations where a company has production potential and, through international exports, the opportunity to achieve lower unit costs in the domestic market as well. Domestic market drivers may include, for example, the pressure of the competitive environment, saturated domestic markets, overproduction, seasonal fluctuations, and the proximity of international markets. (Puusa et al. 2014.) According to Whittington et al. (2020), there are many general pressures increasing internationalization.
Barriers to international trade and investment are now lower than they were a couple of decades ago. Yrittäjät (2020) state that internationalization is a commonplace for an increasing number of Finnish SMEs. Growth and success are sought from foreign trade.
According to Yrittäjät (2020) the national economy needs innovative companies.
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Innovative companies have positive external effects on the economy as a whole and without these companies the spread of technology and longer-term growth will become lower and slower. (Whittington et al. 2020, 272 & Yrittäjät 2020a).
Shahzal (2019) investigated the patterns of the internationalization process of Finnish SMEs and how it fits the internationalization models. The study highlights an important element that there is no specific framework or theory, which explains the internationalization process of Finnish SMEs. The research shows that there is clear evidence that there are several SMEs, which have not started international operations due to a lack of market knowledge, financial resources, and due to weak network connections in a foreign market. These are the areas where Finnish institutions could play a very active role in assisting Finnish SMEs in international expansion (Shahzad 2019.)
3.2 The roles of SMEs in the Finnish economy
There are 286,042 enterprises in Finland (Statistics Finland, Business Register 2018), excluding agriculture, forestry, and fishing. They employ 1.4 million people and generate taxes that pay for services for all. 93 per cent of the companies are companies with less than 10 employees. Throughout the 21st century, new jobs in Finland have been created in small and medium-sized enterprises. Between 2001 and 2018, SMEs created jobs for more than 150,399 people. Of these jobs, 87,516 were created in companies with less than 50 employees. More than half (58.1%) of corporate turnover of EUR 434 billion is generated by SMEs, and the SME sector accounts for more than 40% of GDP. See more statistics concerning entrepreneurship in Finland in Table 4. (Yrittäjät 2020b.)
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Table 4. Entrepreneurship in Finland. Adapted from Yrittäjät (2020b).
Key information of entrepreneurship in Finland
• Companies with less than 10 employees are micro-enterprises
• Companies with less than 50 employees are small businesses.
• Companies with 50-249 people are medium-sized.
• SME = company with less than 250 employees.
• Companies with at least 250 employees are large companies.
• Of the companies, 265,894, or 93 percent, are companies with less than 10 employees.
• There are 16,498 small enterprises (5.8%), 2,995 medium-sized enterprises (1.0%) and 655 large enterprises (0.2%).
• 68% of entrepreneurs are sole proprietors.
3.2.1 SMEs in South Savo region
According to Etelä-Savo ennakoi (2020), the importance of area vitality is recognized throughout the South Savo region. South Savo is an SME-dominated region with a diverse business structure and is thus a naturally resilient region. The share of self-employed persons among employed persons is the second highest in the country. The number of growth companies is low, and the R&D resources are scarce. Market renewal is less pronounced due to the low level of local competition. Companies that operate in new markets and need support for growth will have to look further a long way for partners.
(Etelä-Savo ennakoi 2020.)
There are about 10,000 companies and 12,723 company locations in South Savo. These had about 30,000 person-years in 2018 and a turnover of more than EUR 5.7 billion. As many as 95 percent of companies in the region are small micro-enterprises with less than 10 employees. The most employing industries are industry, trade, primary production, and construction. In the economic structure of the region, the intensity of primary production is more strongly emphasized than in the rest of the country. South Savo has traditionally exported various products, services, and know-how from industry, especially the forest and
37
machinery and equipment industries. The cyclical development of the regions industrial export turnover has been declining since 2019. The value of South Savo's exports of goods in 2019 was EUR 356 million, which is 0.5 per cent of the value of the country's total exports (Customs). Raising the level of internationalization of companies is one of the province's key goals for a globalizing economy. (Etelä-Savo ennakoi 2020.)
4 METHODOLOGY, DATA AND ANALYSIS METHOD
This chapter focuses on describing the methodological issues related to the research. The chapter explains the research paradigm of the case study and arguments behind the decisions of a chosen research methodology.
4.1 Research approach
The research is executed by using qualitative research. Internationalization and motivation towards internationalization are investigated by using qualitative research with the aim to get a more in-depth picture of the phenomenon. The literature review addresses the research questions and serves as a base for analysis required to answer the research questions. The preliminary data is collected by conducting interviews with SMEs in the South Savo area. The interviews with the companies are transcribed and the transcripts are compared with secondary data. The combination of the collected primary and secondary data enables forming a holistic view of the research topic.
The research is conducted by using the case study approach, where the focus is on describing, understanding, predicting, and/or controlling e.g. an organization (Woodside, A. G. 2017). The aim is to generate in-depth understanding of the researched issue in the real-life context. For this purpose, the used analysis method is cross-case analysis.
