There are two internationalization strategies which play an active role behind the development of small and medium sized enterprises (SMEs): exporting and foreign direct investment (FDI). They either act jointly or individually to affect the growth of such firms. FDI is more effective than exporting strategy for the growth of SMEs. A strategy which incorporates high rate of exporting with high FDI will have obviously higher rates of firm growth. Those firms who take up the internationalisation strategy at the initial stage have better chance of prospect and growth than those who internationalise late (Loane & Bell, 2006).
Traditionally SMEs have a small financial foundation, domestic target and limited geographic opportunities. …show more content…
International car industry is a good example of such type of internationalisation. Volkswagen intends to explore international markets with its product. Many small suppliers had to internationalise in order to match with Volkswagen as there exists an interdependent network of relationships. In order to avoid competitive disadvantage the small and medium sized suppliers had to forcefully follow the path of Volkswagen’s international steps (Coviello & Jones, 2004).
Another reason to choose internationalisation activities is to survive in the market populated with foreign competitors. These foreign competitors follow a very aggressive policy to capture the major share of the market, so it is better for the domestic firms to expand their focus on international markets. There is a positive change in the general economic climate of the world. This positive change is providing incentives to the firm to think of expansion beyond boundaries. Many firms and companies are finding it easy to take up internationalisation activities. Earlier there used to exist strong market entry barriers that demoralised them from taking global steps (Macpherson & Holt, 2007). These days international expansion reaps more benefit for companies compared to earlier days. Eastern European and Asian countries are newly emerging markets for such businesses as the market development is in its infancy stage in these countries. These new markets involve risks and demands thorough planning before venturing. Compared to saturated Western markets, these emerging markets promise better opportunities and huge profit margins by sharing a respectable market