The Influence of Network Competence on Internationalization of SMEs
Torkkeli, Lasse (2013-11-08)
Väitöskirja
Torkkeli, Lasse
08.11.2013
Lappeenranta University of Technology
Acta Universitatis Lappeenrantaensis
Julkaisun pysyvä osoite on
https://urn.fi/URN:ISBN:978-952-265-480-9
https://urn.fi/URN:ISBN:978-952-265-480-9
Tiivistelmä
This study focuses on the relationship between organizational network competence and the
internationalization process of small- and medium sized enterprises (SMEs). Over recent
decades, the global business environment has become increasingly conducive to
internationalization of small firms. A central facilitating factor in the process has been the
emergence of networked business relationships between internationalizing firms. Research
on SME internationalization has found that certain types of structures and dynamics of
business networks allow SMEs access to the resources they need to enter foreign markets.
This consequently means that their internationalization often becomes to depend on the
networks they are embedded in. However, research so far has mostly ignored the
possibility that the organizational ability to develop and manage business network
relationships, network competence, may be a major underlying factor in determining how
well SMEs can leverage their network relationships to enter foreign markets and
consequently may determine in large part how successful their internationalization process
turns out to be.
This study aims to respond to those gaps, by empirically examining how the development
of network competence in internationalizing SMEs influences the internationalization
outcomes that they can expect, and how such network competence is conceptualized and
developed. Using a mixed methods approach, survey data collected from 298 Finnish
SMEs across five industry sectors is first used to examine how levels of network
competence are related to internationalization propensity of SMEs and their subsequent
international performance, growth and profitability as internationally operating firms. In
order to illustrate in more detail the ways in which network competence is conceptualized
and how it develops during the internationalization process of an SME, qualitative data
from internationally operating Finnish SMEs are used. Longitudinal interview data of an
internationalizing Finnish SME is accompanied by data gathered through a series of semistructured
interviews of Finnish and Russian managers involved in mutual business
relationship dyads. Structurally, this thesis examines the research issue as an article-based
dissertation, consisting of five journal and conference publications. Three of these
publications are based on the quantitative data, and the remaining two apply the qualitative
interview data.
The results find several aspects where network competence has a positive influence on the
success of internationalizing SMEs, how it develops and what it entails conceptually in this context. Quantitatively, the level of network competence is found to have a positive
relationship to various internationalization outcomes, including the propensity of SMEs to
enter foreign markets and on their subsequent international performance, their growth and
their profitability. Additionally, the positive relationship is divided between the
relationship-specific and cross-relational dimension of network competence, in that the
influence of the former is relevant for the propensity to internationalize, while the latter is
for the growth and profitability of the already internationalized SMEs. Qualitatively, the
results suggest, firstly, that the development process of network competence does not
necessarily precede the start of the internationalization process, but may occur through a
gradual learning process alongside it. And secondly, the results also imply that the
conceptualization of network competence by Finnish managers of internationally operating
Finnish SMEs is structurally distinct from that of their culturally distinct partner managers
in Russia.
This study contributes to the literature on SME internationalization in several ways. Firstly,
it introduces operationalized organizational competencies to the literature on
internationalization of SMEs, which has so far mainly examined the influence of business
networking on the internationalization process without having such an organizational
viewpoint. Furthermore, this study provides a multi-level analysis of the determinants of
successful SME internationalization, by examining various strategic and performance
outcomes across the process. These results also contribute to the literature on
organizational strategy of internationalizing SMEs, by clarifying how different dimensions
of business networking may be optimal in different phases of the internationalization
process. Conceptually, the results of this study contribute to the literature on competence
development and SME internationalization, by illustrating how the development process of
network competence may occur during internationalization process. Thus, they also
contribute to the discussion on how SMEs are able to influence the dynamics and
structures of their business networks over time. Finally, this study contributes to the
literature on the role of culture in the internationalization process, by implying that the
cultural background of the manager of the SME may determine whether business
networking and network competence is seen as an organizational-level or an individual
level capability.
The study also includes some additional contributions to the literature on dynamic
capabilities in strategic management, and on that of strategic business networks. These
include further clarifying the exact nature and tangibility of dynamic capabilities, and
being one of the first studies to introduce constructs from both dynamic capabilities and
business network literature to the field of international entrepreneurship. And finally, the
study also has some contribution on the two streams of literature, in illustrating how both
dyadic and network-level capabilities may be relevant, depending on the current strategic
goals and market position of the firm.
Keywords: network competence, internationalizatio
internationalization process of small- and medium sized enterprises (SMEs). Over recent
decades, the global business environment has become increasingly conducive to
internationalization of small firms. A central facilitating factor in the process has been the
emergence of networked business relationships between internationalizing firms. Research
on SME internationalization has found that certain types of structures and dynamics of
business networks allow SMEs access to the resources they need to enter foreign markets.
This consequently means that their internationalization often becomes to depend on the
networks they are embedded in. However, research so far has mostly ignored the
possibility that the organizational ability to develop and manage business network
relationships, network competence, may be a major underlying factor in determining how
well SMEs can leverage their network relationships to enter foreign markets and
consequently may determine in large part how successful their internationalization process
turns out to be.
This study aims to respond to those gaps, by empirically examining how the development
of network competence in internationalizing SMEs influences the internationalization
outcomes that they can expect, and how such network competence is conceptualized and
developed. Using a mixed methods approach, survey data collected from 298 Finnish
SMEs across five industry sectors is first used to examine how levels of network
competence are related to internationalization propensity of SMEs and their subsequent
international performance, growth and profitability as internationally operating firms. In
order to illustrate in more detail the ways in which network competence is conceptualized
and how it develops during the internationalization process of an SME, qualitative data
from internationally operating Finnish SMEs are used. Longitudinal interview data of an
internationalizing Finnish SME is accompanied by data gathered through a series of semistructured
interviews of Finnish and Russian managers involved in mutual business
relationship dyads. Structurally, this thesis examines the research issue as an article-based
dissertation, consisting of five journal and conference publications. Three of these
publications are based on the quantitative data, and the remaining two apply the qualitative
interview data.
The results find several aspects where network competence has a positive influence on the
success of internationalizing SMEs, how it develops and what it entails conceptually in this context. Quantitatively, the level of network competence is found to have a positive
relationship to various internationalization outcomes, including the propensity of SMEs to
enter foreign markets and on their subsequent international performance, their growth and
their profitability. Additionally, the positive relationship is divided between the
relationship-specific and cross-relational dimension of network competence, in that the
influence of the former is relevant for the propensity to internationalize, while the latter is
for the growth and profitability of the already internationalized SMEs. Qualitatively, the
results suggest, firstly, that the development process of network competence does not
necessarily precede the start of the internationalization process, but may occur through a
gradual learning process alongside it. And secondly, the results also imply that the
conceptualization of network competence by Finnish managers of internationally operating
Finnish SMEs is structurally distinct from that of their culturally distinct partner managers
in Russia.
This study contributes to the literature on SME internationalization in several ways. Firstly,
it introduces operationalized organizational competencies to the literature on
internationalization of SMEs, which has so far mainly examined the influence of business
networking on the internationalization process without having such an organizational
viewpoint. Furthermore, this study provides a multi-level analysis of the determinants of
successful SME internationalization, by examining various strategic and performance
outcomes across the process. These results also contribute to the literature on
organizational strategy of internationalizing SMEs, by clarifying how different dimensions
of business networking may be optimal in different phases of the internationalization
process. Conceptually, the results of this study contribute to the literature on competence
development and SME internationalization, by illustrating how the development process of
network competence may occur during internationalization process. Thus, they also
contribute to the discussion on how SMEs are able to influence the dynamics and
structures of their business networks over time. Finally, this study contributes to the
literature on the role of culture in the internationalization process, by implying that the
cultural background of the manager of the SME may determine whether business
networking and network competence is seen as an organizational-level or an individual
level capability.
The study also includes some additional contributions to the literature on dynamic
capabilities in strategic management, and on that of strategic business networks. These
include further clarifying the exact nature and tangibility of dynamic capabilities, and
being one of the first studies to introduce constructs from both dynamic capabilities and
business network literature to the field of international entrepreneurship. And finally, the
study also has some contribution on the two streams of literature, in illustrating how both
dyadic and network-level capabilities may be relevant, depending on the current strategic
goals and market position of the firm.
Keywords: network competence, internationalizatio
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