2124-smes in international contexts an italian perspective

7/29/2019 2124-SMEs in International Contexts an Italian Perspective

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SMES IN INTERNATIONAL CONTEXTS: AN ITALIAN PERSPECTIVE

Laura Gavinelli - [email protected] OF MILAN-BICOCCA

Cinzia Colapinto - [email protected] FOSCARI UNIVERSITY OF VENICE

Mariangela Zenga - [email protected] OF MILAN-BICOCCA

Angelo Di Gregorio - [email protected]

UNIVERSITY OF MILAN-BICOCCA

SIG: INTERNATIONAL MANAGEMENTTRACK: INTERNATIONAL MANAGEMENT GENERAL TRACK - RESEARCHING THE INTERNATIONALISATION OF SMES AND MICRO-BUSINESSES - ADVANCES

AND FUTURE PERSPECTIVES

Access to this paper is restricted to registered delegates of the EURAM 2013 (European Academy of Management) Conference.

ISBN No: 978-975-8400-35-5


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SMEs in international contexts: an Italian perspective

ABSTRACT

International business strategies by Small and Medium Enterprises (SMEs) are a crucial issue for

Italian economy. The process of internationalization seems to be an effective but complex

solution for enterprises to survive in the current financial and economic crisis. Thus, this process

may require deep changes in decision making, management, organizational and marketing

procedures. The paper presents the results of a quantitative research on SMEs located in Monza

and Brianza province

one of the most productive territories in Italy. The aim is to analyze whyand how these SMEs do behave towards internationalization (current and future entry modes,

motivations, advantages and difficulties) referring to four key areas: innovation and technology,

networking, green approach and human resources competences. A questionnaire was

distributed to 792 enterprises with a redemption rate of 24.37%. The data were collected with

CAWI method and processed with Rasch analysis, PCA Principal Components Analysis and Cluster

analysis methods. Four different clusters have emerged with specific approaches.

Keywords: innovation, Rasch-Cluster analysis, Italy


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SMEs in international contexts: an Italian perspective

Laura Gavinelli1, Cinzia Colapinto

2, Mariangela Zenga

1, Angelo Di Gregorio

1

1University of Milan-Bicocca, Milan-Italy; 2C Foscari University of Venice, Venice-Italy

Abstract:

International business strategies by Small and Medium Enterprises (SMEs) are a crucial issue

for Italian economy.The process of internationalization seems to be an effective but complex

solution for enterprises to survive in the current financial and economic crisis. Thus, this

process may require deep changes in decision making, management, organizational and

marketing procedures.

The paper presents the results of a quantitative research on SMEs located in Monza and

Brianza province one of the most productive territories in Italy. The aim is to analyze why

and how these SMEs do behave towards internationalization (current and future entry modes,

motivations, advantages and difficulties) referring to four key areas: innovation and

technology, networking, green approach and human resources competences.

A questionnaire was distributed to 792 enterprises with a redemption rate of 24.37%. The data

were collected with CAWI method and processed with Rasch analysis, PCA Principal

Components Analysis and Cluster analysis methods. Four different clusters have emerged

with specific approaches.

Keywords: International business strategy, Small and Medium-sized Enterprises, innovation,

Rasch analysis, cluster analysis, network


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Introduction

The small and medium enterprise is the engine backbone of the Italian economy. Small and

Medium-sized Enterprises (SMEs) account for nearly 99% of the national enterprises and

among them the micro-enterprises (those with less than 10 employees) represent the wide

majority. International business strategies by SMEs are affected by economic conditions, thus

the current economic/financial crisis may change strategic behaviors and affect decision

making processes: for instance credit crunch and sales reductions have reduced financial

resources. Indeed, economic theory predicts a reduction in internationalization when the cost

of capital is higher, as experienced in the recent global financial crisis (Ricardo, 1963). As

internationalization is a form of geographic diversification, an enterprise may decide to focus

on core activities in order to reduce its costs. This is particularly true if we considerSMEs

which traditionally have a small financial base, a domestic focus and a limited geographic

scope (Barringer & Greening, 1998).

Empirical evidence is provided for Italian enterprises located in Monza and Brianza Province

in Lombardy (North of Italy): we conducted a quantitative research to gather specific

information on the internationalization phenomenon. The aim of the paper is to employ a

cluster analysis via Rasch model to conduct an exploratory analysis about companies

behavior in respect to different competitive areas: innovation and technology, formal and

informal networks, green approach, HR training. The paper draws some inference on key

elements likely to impact on futures, particularly with respect to internationalization and

organizational and technological innovation. The final discussion draws these elements

together.

Theoretical framework: internationalization and SMEs

In the last decade we witnessed a substantial research on the internationalization of SMEs, as

the importance of SMEs in international markets has increased.


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Man et al. (2002) assert that smaller firms differ from larger ones in their managerial style,

independence, ownership and scale/scope of operations (Coviello & Martin, 1999) and

consequently they respond to the environment and compete with other firms in particular

ways. However, internationalization is part or a consequence of a firms strategy. Using

Ceccantis (1996) firm representation, it is not only a key factor for competitiveness, but it is

also a strategy able to keep a firm in its survival area.

Some theories describe the internationalization process based on a gradual and sequential

staging pattern, with an increasing commitment: the main ones are the international product

life cycle (Vernon 1966), the Uppsala-models (or U-Models) developed by Johanson and

Vahlne (1977) and the innovation-related internationalization models (or I-models)

conceptualized by Cavusgil (1980).

According to the U-model, firms tend to favour nearby countries within a low psychical

distance when they start their foreign operations and afterward expand them to distant

markets: psychically nearby countries are easier to understand and make the business

operations easier to implement because they present fewer cultural and/or business practice

differences. The model identifies the evolution of entry modes through four stages: no regular

export, export through agents, founding an overseas sales subsidiary, and own production. In

other words, from indirect entry modes to the establishment of direct operations (usually once

the firm has increased knowledge). The taxonomy should be completed considering joint

venture operations and acquisition.

However, not all surveys confirm the impact of distance and identify alternative factors

explaining internationalization, such as customer followership and niche markets (Bell, 1995)

or the existence of foreign partners and managers past experiences (Madsen and Servais,

1997).


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Moreover, recently the notion that firms go global gradually has been challenged by several

scholars and surveys. Firms are often reported to start international activities right from their

birth, to enter very distant markets right away, to enter multiple countries at once, or to form

joint ventures without prior experience. Such firms have been labeled in different ways:

International New Ventures (Oviatt & McDougall, 1994), High Technology Start-Ups (Jolly

et al., 1992), and Born Globals (McKinsey & Co., 1993; Knight & Cavusgil, 1996; Madsen &

Servais, 1997).

Internationalization is linked to investments in four different areas, such as: innovation

(product, process or organizational) and technology, formal and informal networks, green

approach and HR training.

Several studies explore export and research activities as joint explanatory variables.

Technology allows product innovations (products with superior characteristics as the ones

offered by the competitors) and process innovation (reducing the costs of production and,

consequently prices). Innovative SMEs experience increased productivity, potential growth,

and general sustainability in their activities, and they also obtain some competitive advantages

in order to compete in foreign different markets (Cefis and Marsili, 2006; Eusebio and Rialp,

2002; Oviatt and McDougall, 1994).

Several studies (Acaravci and Ural, 2012; Becker and Egger, 2009; Vandenbussche & Van

Beveren, 2010) demonstrated that product and process innovations contribute equally to

internationalization, as they act as relevant levers of the propensity of enterprises to export.

Nowadays the business environment is viewed as a web of relationships, a network, and many

studies (Coviello and Munro, 1995, 1997; Welch and Welch, 1996) have demonstrated the

role of networks in the internationalization of firms. In particular, Halln (1986) demonstrated

that close and lasting business relationships between suppliers and customers are important,

be they within a given country (local, regional or national) or between countries


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(international). Moreover, getting back to the innovation issue it is evident that innovation in

SMEs consists of an interactive model where technology emerges from the conjunction of

several organizations at different stages of the process (Saren, 1990).

The green approach is another driver for competitiveness (Porter and Kramer, 2006; Klassen

and Mclaughlin, 1996; Porter and Van der Linde, 1995; Dechant and Altman, 1994)

especially at an international stage. It is tightly linked to the issues of sustainable development

social, economic and environmental (Judge and Douglas, 1998; Daly, 1990) social

corporate responsibility (Henriques and Sadorsky, 1999), technological and organizational

innovation (Nidumolu, Prahalad and Rangaswami, 2009), effectiveness and efficiency use

of resources, reduction of labor and production costs, energy saving, and financial capabilities

(Mackey, Mackey and Barney, 2007; Waddock and Graves, 1997) and brand reputation

(Scott, 2003).

Successful international expansion requires the managerial capabilities necessary to configure

and leverage a firms resources in the international marketplace. Human resources constraints

often limit the effective implementation of international business strategies, indeed a more

rapid pace of internationalization leads to a more strategic role for human resources

management (HRM) as well as changes in the content of HRM (Pucik, 1992) and the impact

of HRM on organizational performance (Becker and Gerhardt, 1996; Delaney and Huselid,

1996). Gomez-Mejia (1988) has studied the effect of human resources strategy on the export

performance showing that the way human resources are selected, deployed, compensated and

motivated play a significant role in subsequent export performance.

Empirical analysis

Motivation for the research

The research presented in this article is based on the Osservatorio Impresa Monza e Brianza

2012. The observatory has been organized by Research Centre in Territorial Economics


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(CRIET) - University of Milan-Bicocca, in collaboration with Confindustria Monza and

Brianza Association and BNL BNP Paribas Group. Every year the Observatory monitors the

enterprises associated with Confindustria Monza and Brianza through a survey which is

focused on a specific topic. The theme of the 2012 survey was the economic and financial

crisis from the point of view of the factors of competitiveness for the enterprises, the strategic

areas to invest in, and business networks and partnerships.

The internationalization processes were a subsection in the investments for the

competitiveness section. The aim was to investigate the reasons why the sample enterprises

do internationalize. In particular, some parts of the items in the questionnaire were devoted to

analyze five items/topics: the entry modes the enterprises prefer, the entry modes for the

future, the motivations to internationalize, the advantages they achieved and the difficulties

they came across with.

The competitive behavior of the surveyed enterprises has been then analyzed through 4 main

thematic areas (see previous paragraph): innovation and technology, formal and informal

networks, green approach, HR training.

As said before the principal aim of the research is to analyze and classify managerial behavior

(cluster analysis). In order to analyze these topics in a unitary way, a Rasch analysis (Rasch,

1969) was implemented and five latent continuums/variables were identified. For this reason

no specific hypotheses have been identified. In fact, Rasch analysis would answer

simultaneously to the following questions:

- which is the position of every enterprise on the latent continuum for each topic?- which is the position of every topic on the latent continuum for each area?To answer these questions a sample of enterprises were surveyed. They operate in one of the

most productive and competitive territories in Italy, the province of Monza and Brianza

(nearby Milan).


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Research methodology

A questionnaire was distributed to the 792 enterprises associated to Confindustria Monza and

Brianza in the period 14th May to 22nd July 2012.

The data were collected with CAWI Computer Aided Web Interview method, together

with phone recall and a tutorship individual telephone activity (4 trained tutors, 11 days

working, 1,123 successful calls).

The redemption rate was of 24.37% with 193 fully completed questionnaires, which reached

34.5% rate including the partially filled questionnaires (80 enterprises).

The collected data were processed in an aggregated way, in order to maintain the privacy of

the respondents.

In general, the respondents are small and medium enterprises. Most of them operate mainly in

the engineering industry (51 firms), which is the most represented sector in the sample; 14

enterprises operate in the field of manufacturing of plastics, metal products (extra mechanical

work), advertising, wholesale trade, informatics, electronic and optical equipment. Finally, the

other sectors represented are the chemical (9 enterprises), the wood (4 respondents) and the

textile clothing (3 respondents) ones.

In order to create a measure of internationalization, a Rasch analysis on the five areas of

topics was produced: every enterprise had a score for the five latent continuums regarding the

internationalization. The second tool used to understand the position of the enterprises respect

to a unique latent variable (the level of internationalization) was the principal component

analysis (PCA). The aim of PCA was to reduce the dimensionality of a data set consisting of

interrelated variables (the five topics of internationalizations), while retaining as much as

possible of the variation present in the data set (Joliffe, 2002). The PCA allows creating a

map where it is possible to position the original variables and the enterprises. It was evident

that the enterprises behavior (and obviously the position on the PCAs map) about the


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internationalization variable was very different, but it was even more manifest to individuate

groups of enterprises with similar judgments/opinions about internationalization. A cluster

analysis (Johnson and Wickern, 2007) individuated four groups so that the enterprises within

each group were similar with respect to five latent variables (produced by Rasch analysis),

and the groups themselves stand apart from one another. At the end the four groups were

analyzed taking into account anagraphic factors, aspects of competitiveness for the

enterprises, the strategic areas to invest in, and business networks and partnerships.

Insert here figure 1

Rasch Analysis

The Rasch model allows to position at the same time the different items and the enterprises on

the areas of the internationalization, creating interval measures1. The position of a single

company is given by its answers on every item, whereas the position of a particular item is

given by the answers of every company on that item.

Generally speaking, the Rasch model converts raw scores into linear and reproducible

measurement. It belongs to the item response models aimed at measuring one or more

ordinal/quantitative latent variables on a metric level of measurement. The Rasch models

hypotheses are the unidimensionality2

and the local independence3. Moreover the Rasch

model presents the properties of sufficiency, separability4, specific objectivity

5and

invariance6

of parameters estimates (Bond and Fox, 2007).

1The measures produced applying the Rasch model to the data are expressed in logit (Wrigth and Masters, 1982)

that is an interval scale.2 The Rasch model requires a single construct to be underlying the items that for a continuum.3

The items of a questionnaire are statistically independent of each subpopulation of respondents whose members

are homogeneous with respect to the latent trait measured.4 The mathematical form of the Rasch model provides the separation of item and person parameters with the

consequence that the total score for the items or persons is sufficient statistic for the item or person parameters.5

The property of specific objectivity means that the relative location of pairs of persons and pairs of items on theunderlying continuum are sample independent.6

The maintenance of the identity of a variable from one occasion to the next.


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In presence of ordinal polytomous data, as in our case, the adopted Rasch model is the Partial

Credit, (Writings and Masters, 1982) that incorporates the possibility of having differing

numbers of response opportunities for different items on the same questionnaire.

Let beX=(xij) the data matrix, wherexij is the score given to thej-th item by the i-th company.

Moreover, let Y=0, 1, ,m be the vector with the ordinal categories for the j-th item. Using

the terminology of Rasch analysis, in the Partial Credit Model, the difficulty to indicate the x-

th category of the j-th item is given as the passing of the modalities difficulties on the

previous items:

=

= +

where is the mean difficulty of the j-th item and is the threshold of the previouscategories ofx-th category. The probability that the i-th company gives thex-th score tothej-th item is:

= exp exp where is the ability of the i-th company. From the last equation we obtain:

ln 1 + () = which is an adjacent-categories logit model with interactions between items and logits (De

Boek and Wilson, 2004).

After estimating the parameters and , it is possible to place on the latent continuum boththe items and the enterprises. Figure 2, reports an example of 4 enterprises for 5 items

measured on the latent continuum, where agreement and disagreement represent the positive

and negative poles of the latent trait.

Insert here Figure 2


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The parameters estimations were obtained using the software WINSTEP7

(Winstep, 2012).

The results

To test the propensity to internationalization, we considered only the 77 enterprises that

internationalize. The opening across the national borders is an established practice. Most

respondents do so for over 10 years (47 respondents, of which 31 of the engineering sector).

The average foreign sales account for 0% to 25% of the total turnover of all the respondents.

This comes out from Europe (56%), mainly. Then, the BRICS countries (Brazil, Russia,

India, China and South Africa) account for 17% of foreign sales. The Arab countries produce

10% of the foreign turnover, while the Eastern European countries 7% of turnover. Finally,

the U.S., Japan, Korea, Australia, and Northern Africa markets account only for 5% overall.

Entry modes

The question to analyze the entry modes of respondents in foreign markets was: What kind

of investments have you made to internationalize?". The answer had a multiple choice

structure.

Table 1 reports the results of Rasch analysis. Using the Rasch analysis terminology, the items

with more negative values are considered as the easier, while the items with the more positive

values are more difficult. In our analysis more negative values are related to more chosen

item, on the contrary, more positive values are related to less chosen items. We assessed the

one-dimensionality of the model a priori: given the nature of the response variable, we

proceeded with a correspondence analysis. The proportion of inertia explained by its first

dimension was not so low (53.7%) and the first axis almost clearly separated the three

response options. Moreover infit and outfit ZS estimates showed reasonable values.

7Winstep is a statistical software devoted only to Rasch analysis.


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The data show that the most favored investments by the respondents are direct sales force,

agent network and affiliated enterprises, subsidiaries.

We deduce from this, that the choice of how to investment is accompanied by the level of

development of the enterprise and the risks that it is able to deal with. All three solutions

show a clear strategy to cover the target market and to manage business relationships that are

one of the most competitive factors reported by respondent enterprises.

It can be also said that the enterprises operating in foreign markets pay particular attention to

their customers (direct selling), taking all the necessary tools to create value for them

(satisfaction and loyalty).

In particular, the direct sales force requires specially trained people who deal with the foreign

customer directly. The agent promotes the conclusion of commercial contracts, while the

subsidiary or affiliate enterprise has staff that is permanently located abroad.

The types of investments that were chosen are also coherent with the limits and potentialities

of the respondents. Finally, the investment in franchising, shareholdings and licensing are less

adopted, due to size and financial problems of the enterprises and to their low level of

productive relocation.

Insert here Table 1

Entry modes (for the future)

The question to analyze the entry modes for the future of respondents in foreign markets was:

What kind of investments will you made to internationalize?". The answer had a multiple

choice structure.

Table 2 reports the results of Rasch analysis on entry modes for the future. The items showed

a unique latent variable, in fact infit and outfit ZS estimates have reasonable values, moreover

the proportion of inertia explained by its first dimension was very high (73.3%) and the first

axis clearly separated the two response options.


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Enterprises operating in foreign markets use principally direct sales force, a network of agents

and affiliates or subsidiaries enterprises (as indicated in the last section). As in the last section

Franchising and shareholdings are the less chosen modes.

Insert here Table 2

Motivations to internationalization

For this issue, the question was For what reasons does your enterprise internationalize? The

question had a multiple choice structure, with a 1 to 5 points evaluation scale, where 1 meant

minimum importance and 5 maximum importance.

Table 3 reports the motivations to internationalization according to the Rasch measure. The

items were well accorded each other, in fact infit and outfit ZS estimates did not show values

greater than 2 or less than -2, moreover the proportion of inertia explained by its first

dimension was acceptable (59.6%) and the first axis clearly separated the five response

options.

Enterprises that internationalize do so for several reasons. The most important reasons are the

satisfaction of the foreign market, a well established tradition in operating abroad and the

decrease in the domestic demand.

Instead, the following reasons are less important: the possibility to imitate competitors and to

have some support from public institutions.

The data demonstrate that internationalization represents an opportunity for the enterprises to

meet the foreign customer needs more effectively, as well as a response to the decreasing

domestic demand that drives enterprises towards more competitive markets.

Insert here Table 3


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Advantages from internationalization

For this issue the question was What are the advantages does your enterprise achieve when

internationalizing?. The question had a multiple choice structure, with a 1 to 5 points

evaluation scale, where 1 meant minimum advantage and 5 maximum advantage.

In table 4, the items scale for the advantages from the internationalization is reported. The

items did not show problems on the agreement among each other, moreover the proportion of

inertia explained by its first dimension was high (64.8%) and the first axis clearly separated

the five response options.

Thanks to the internationalization process, the respondents declare to have obtained the

following advantages: the acquisition of new foreign customers, an improved brand equity

and increasing profits.

The data lead to some reflections. The enterprise benefits from the creation of value for the

customer. Therefore, to acquire new foreign customers is undoubtedly a key performing

factor. These results are confirmed by the previous ones about the motivation to

internationalize.

Improving the brand equity is essential for those enterprises that wish to invest abroad and

consolidate their position in increasingly competitive markets. The firm size is a necessary but

not sufficient issue to operate and succeed abroad. The size increase makes enterprises more

competitive from the point of view of production and financial capabilities, helping them to

respond to the foreign markets demands more effectively, as well.

Finally, the satisfaction of foreign customers is a strong driver for the surveyed companies to

internationalize.

Insert here Table 4


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Difficulties in internationalization

For this issue the question was What are the difficulties does your enterprise come across

when internationalizing?. The question had a multiple choice structure, with a 1 to 5 points

evaluation scale, where 1 meant minimum difficulty and 5 maximum difficulty.

Table 5 reports the items rank about the difficulties in internationalization according to the

Rasch scale. The items seem well accorded each other and the proportion of inertia explained

by its first dimension was not so low (49.5%).

The custom barriers are the most signaled difficulty to operate at an international level. In fact

custom barriers are particularly dissimilar and difficult in some markets, especially in the

emerging ones. The second difficulty8

is the limits in firm size, while the third difficulty is to

make the brand recognizable beyond national borders. In most cases, although the corporate

brand is nationally recognized, its equity and credibility is quite feeble abroad. This means

that the respondents do have still much to do to strengthen their branding strategies, especially

in foreign markets.

The adaptation to local legislation (e.g. on patents, packaging) is seen as more difficult than

the adaptation to the local culture, language and customs.

As we can see, one of the greatest difficulties is confirmed to be that of the company size.

This is a typical characteristic of our entrepreneurship, both in Brianza and in Italy. Moreover,

the respondents link the size problem also to their difficulties in developing international

collaborative networks.

Insert here Table 5

Four clusters: different managerial behaviors towards internationalization

A further data processing has been done. The Rasch analysis and the principal components

analysis have permitted us to map the internationalization research area. In particular the PCA

8The value of the score is very close to that of the first item.


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results produced very interesting discussion points. The PCA was used with the objective of

establishing the associations between the variables of internationalization and to note any

correlations between them. Three principle components were selected that together explain

more than 82.47% of the variance (results in the Table 6).

Insert here Table 6

The first component represents the internationalization overall, since the first eigenvector

shows approximately equal positive loadings on fours of the five variables. The second

eigenvector has high positive loadings on the variables entry modes and entry modes (in

future) but even higher negative loadings on the variables motivations and difficulties. This

component seems to reflect the current and future investments in internationalization, but it

also reflects a lack of motivation and a high awareness on the difficulties towards

internationalization. The third eigenvector has a very high positive loading on the variable

difficulties and a high negative loading on the variable advantages. This component seems to

reflect a polarity situation on disadvantages/advantages to internationalize.

Figure 3 shows scatter plots of the first, second and third components. Observations 42, 69,

76 and 79 seem like outliers on the three components.


SAS FASTCLUS procedure), was used to group subjects on the basis of similarity in their

The PCA by scatter plots of the components suggested the existence of several groups related

by the latent variables of the five topics of internationalization. Cluster analysis, via the

hierarchical technique and the Ward method9, was used to group enterprises on the basis of

similarity in their scores on the five internationalization topics. The numbers of clusters

selected were based on cubic clustering criterion (Sarle 1983).In this way four groups/clusters

were examined for inter-cluster differences. Moreover the clusters were also analyzed taking

9 We implemented theproc clusterin SAS software.


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into account data from AIDA database. The finding of significant differences between clusters

in terms of these related external variables provides strong support for the validity of the

cluster solutions (Alenderfer and Blashfield, 1989).

Insert here Table 7

Table 7 reports the results of the cluster analysis for the total sample and the four clusters.

The enterprises in cluster 1 (the non-involved enterprises) do short term investments in

internationalization, but they have no intention to invest in the future. Despite they declare the

lowest level of difficulties, they show a reasonable motivation to internationalize, even if they

do not benefit from it. The cluster consists of micro and small sized enterprises that are

specialized in the engineering industry with Srl (limited company) family corporate form,

with an average of 30 employees and an estimated average turnover of 10 million Euros. The

employees show low-medium level of education and are mainly 31 to 50 years old. This

group seems not to be interested in internationalizing, because it is more involved at local

level.

The cluster 2 (the less motivated enterprises) does short-medium time investments in

internationalization and will go on investing in the future, even if without particular

advantages. This is confirmed by the fact that they declare having experienced some

difficulties in internationalizing. Moreover, cluster 2 is less motivated than the total sample.

This cluster, although is heterogeneous, has specific connotations: it consists of medium sized

enterprises, specialized in engineering industry, with a Srl (limited company) family corporate

form. The estimated average turnover is about 20 million Euros and the average number of

employees is 60. The mature human resources have a medium level of education. In short,

this cluster is composed by medium-sized enterprises that believe in internationalization as a

way for future investments, even if they did not achieve particular advantages.

The cluster 3 (the advanced family businesses) does medium-long term investments in


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internationalization. The high levels of motivations and advantages and the low level of

difficulties drive this cluster to invest in internationalization in the future. Cluster 3 consists of

medium-large sized enterprises, mainly specialized in engineering industry and textile

industries, with Srl and Spa (limited companies) family corporate forms. The estimated

average turnover is about 130 million Euros and the average number of employees is 175. The

human resources have a medium-high level of education and are slightly older than the

employees of the other clusters. Most of the leaders (operating in the engineering and

pharmaceutical industries) of our sample are concentrated in this cluster. In short, cluster 3 is

composed by medium-large sized enterprises and uses the internationalization process as an

established instrument for business.

The cluster 4 (the willful enterprises) is the most optimistic one. These enterprises do

medium-long term investments in internationalization. Despite the highest level of

difficulties, data show high levels of motivations and advantages in operating abroad. They

also intend to keep on investing in international markets in the future. This group is

heterogeneous (4 small, 3 medium and a big enterprise). Its enterprises are specialized in

engineering and textile industries, with Srl and Spa (limited companies) family corporate

forms. The human resources have a low-medium level of education and are aged more than

51 years old. The estimated average turnover is about 80 million Euros and the average

number of employees is 67.

So, despite several difficulties, these enterprises do long-term investments in

internationalization.

The four clusters were put on the maps of the PCs. Figure 4 reports the three maps.


On the PCAs maps the clusters are clearly distinct and the axes characterize the groups

completely.


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In short, it comes up from the analysis that the Monza and Brianza province is a very

productive territory, which is characterized by enterprises investing in the domestic market,

but at the same time they want to expand their business abroad, although in different ways

and with different approaches.

Among the internationalized enterprises, the opening across the national borders is an

established practice. Most of them internationalize, even for over 10 years. This is true

especially for the respondents operating in the engineering industry.

The respondents pay particular attention to their foreign customers (this is the first

motivation for internationalization) and take all the necessary tools to create value for them,

in order to gain their satisfaction and loyalty. This strategy strongly affects the choice of

methods for market penetration, as well as the choice of local investments (direct sales force,

network of agents, subsidiaries and branches).

However, the investments in franchising, joint ventures and licensing are less evident: this

reflects the size and financial performance criticalities of the enterprises surveyed, but it

probably also reflects their low rate of productive relocation that makes this type of

investments less appropriate.

As for the advantages achieved with internationalization, the main ones are the acquisition of

new foreign customers, the improvement of the corporate image and an increase in the firm

size.

Referring to the difficulties the data show that what hinders the opening to international

markets is mainly the size of the respondents. This difficulty is followed by a low brand

recognition, customs barriers, a lack of support from public agencies, and an inadequate

knowledge of the foreign target market.


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Conclusions and managerial implications

The process of internationalization involves all firm's decision making, management,

organizational and marketing procedures. In order to better understand how the respondents to

the questionnaire do behave towards internationalization, we analyzed their strategies and

actions related to four key areas: innovation (product, process and organizational innovation),

business networks and collaborations (formal and informal ones), green approach,

competences and qualification ofhuman resources.

Each cluster has a different approach in relation to these four areas.

Generally speaking, internationalization is the most complex strategy that any enterprise can

undertake. Moreover, family businesses are generally less inclined to grow and this tendency

is aggravated in the international markets sphere. However, the subsample of

internationalizing firms offers interesting insights. Our sample reveals a quite traditional

approach in different areas. Most of the enterprises have been investing in internationalization

since the last decade, and their main focus is Europe (which is now considered as a domestic

market). The most frequent barriers are the firm size, customs barriers and foreign culture and

laws.

Innovation and technology should be important for competitiveness, however only cluster 3

has certifications in all three areas (product, process and organization). For micro-firms

(cluster 1) certifications are not a strategic issue, especially the organizational ones.

Innovation is mainly linked to product innovation for all companies and is mainly

incremental: this is confirmed by the fact that many enterprises position is based on the high

level of specialization and the product quality. The average investment time is quite long for

all enterprises. Micro-firms (cluster 1) confirm their greater flexibility and invest in radical

product innovation, but in the last decade they have been changing (or at least investing in

change) their organizational asset and process, as well.


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The capability of setting-up or consolidating the organizational structure in terms of human

resources and their competences is getting more and more important to face an increasing

complex market. As human resources training is a competitiveness driver, enterprises will

invest in managerial courses. Human resource training is also relevant if it deals with

linguistic skills (in order to cope with foreign markets which are geographically and culturally

distant) or with product innovation (practical courses). Diversely, all enterprises are not

interested in training linked to green issue. It seems that cluster 3 relies on training more

than the other enterprises in all areas.

The green issue is not dominant or overriding. Companies choose to pursue green

objectives, only in order to reduce production costs and save energy. The green approach is

not widespread among the sample, only few enterprises are adopting it, investing in energy

saving (photovoltaic systems) and in the implementation of solar installation. A scarce

interest in training focused on this issue is in line with this setting, as already pointed out in

the previous paragraph.

Even if literature points out the relevance of formal and informal networks, our sample shows

that alliances and cooperative arrangements may not offer an effective means of

internationalization. Franchising and licensing represent a marginal instrument, maybe

because they are not suitable for enterprises that are mainly engineering production

organizations. It seems that small enterprises do not think that networking is an impressive

and effective solution. At an international level, strategic alliances, informal networks and

contractual agreements outnumber.

The internationalization strategy is linked to the development of the enterprises and to the

risks they are able to cope with. Thus an increasing necessity of controlling the end market

and improving the customers relationships is evident. The investments show the intention of

enterprises in the sample of choosing an entry mode coherent with their limits and


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wherewithal (the most important route of export is direct sales force). Investments in

franchising, joint venture and licensing are less frequent. This trend witnesses the existence of

dimensional and financial barriers, and maybe also the low level of productive relocation.

One explanation should be that most enterprises are family business and they prefer to control

their markets tightly and to set a direct relationship with their customers. In other words, the

family objective of controlling the future of the firm may conflict with the business objective

of growing abroad. The traditional direct export route allows local exporting firms to have full

control of their products positioning abroad or to acquire a direct knowledge of foreign

markets opportunities and threats.

The research we presented in this paper gives empirical evidence for Italian enterprises that

are located in Monza and Brianza province, Lombardy (North of Italy) with respect to

international business strategies. Our cluster analysis identifies potential guidelines for

entrepreneurial behavior in respect to key and actual factors (innovation and technology,

formal and informal networks, green approach, HR training) able to sustain competitiveness

especially along a deep financial crisis. Further research could deepen the present analysis in

two directions: with a longitudinal survey on the same sample; covering different territories

on the same topics.

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Figures and Tables

Figure 1 Research design


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Figure 2 An example of graphical representation for enterprises and items on the same

latent variable using Rasch model.


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Figure 3 Scatter plots of the three principal components with the 77 enterprises.


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Figure 4 The maps of the PCA with the four clusters by cluster analysis.

Table 1 The modes of internationalization

NAME Measure Std. err Infit ZS Outfit ZS

Chi-

Square

Direct sales force -1.48 0.1 0.26 0.12 2.82

Agent network -1.1 0.1 0.33 -0.1 2.31

Affiliated enterprises, subsidiaries -0.68 0.11 -1.29 -0.76 1.79

Importers -0.4 0.13 0.78 -0.4 1.53

Exporters -0.26 0.14 1.85 0.98 1.43

Own local sales network -0.2 0.15 -0.43 -0.78 1.39

Joint venture 0.09 0.18 -0.31 -0.31 1.25

Consortia 0.38 0.23 0.55 0.57 1.16


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Export consortia 0.74 0.31 0.39 0.32 1.09

Licensing 0.84 0.33 0.94 0.73 1.08

Shareholdings 0.97 0.36 -0.23 -0.81 1.06

Franchising 1.11 0.4 -0.59 -0.27 1.05

Table 2 Mode of internationalization (future)


Chi-

Square

Direct sales force -2.37 0.32 0.62 0.77 0.34

Agent network -1.97 0.32 0.7 0.72 0.29

Affiliated enterprises, subsidiaries -0.99 0.35 -0.39 -0.54 0.17

Own local sales force -0.44 0.4 1.13 1.15 0.12

Joint Venture -0.44 0.4 -0.3 -0.09 0.12

Importers 0.11 0.46 0.77 0.32 0.08

Exporters 0.61 0.55 -0.05 -0.53 0.05

Consortia 0.61 0.55 -0.26 -0.52 0.05

Licencing 0.61 0.55 -0.26 -0.52 0.05

Export consortia 2.14 1.03 0.23 -0.33 0.01

Franchising 2.14 1.03 0.23 -0.33 0.01

Shareholdings 3.37 1.83 0 0 0

Table 3 Motivation to internationalization


Chi-

Square

To meet the demand of the foreign

market

-1.49 0.23 0.4 -0.08 4.17

Weve always done -1.32 0.24 -1.37 -1.27 4.00

The domestic demand has decreased -0.76 0.21 0.95 1.16 3.63

Reduction of production costs -0.35 0.27 0.05 -0.01 3.06

Reduction of labor costs -0.04 0.31 -1.12 -1.05 2.67


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As a result of past experiences -0.02 0.28 1.63 1.53 2.73

To imitate competitors 1.36 0.47 -0.78 -0.43 1.92

To benefit from support

programs/initiatives

2.62 0.99 0.25 0.24 1.11

Table 4 Advantages to internationalize


Chi-

Square

Acquisition of new foreign

customers

-1.85 0.33 -1.2 -0.63 4.1

Brand equity -1.78 0.41 0.05 0 4.23

Increase in firm size -0.63 0.39 -0.7 -0.37 3.92

Increase in profits 0.07 0.33 -0.15 -0.5 3.56

Reduction of production costs 1.04 0.36 0.39 0.98 3.22

Acquisition of new domestic

customers

1.24 0.36 0.6 1.12 3.12

Improvements in the supply chain 1.9 0.37 0.47 0.29 2.81

Table 5 Difficulties to internationalize


Chi-

Square

Customs barriers -0.28 0.21 -1.2 -1.06 2.89

Limits in firm size -0.25 0.19 -0.32 -0.56 3.29

Making products/brand recognizable -0.14 0.18 -0.69 -1.1 3.06

Comply with local laws -0.02 0.21 0.4 0.44 2.84

Get support from Italian agencies 0.32 0.23 1.77 1.66 2.66

Get used with local culture, language

and customs

0.37 0.2 0.44 0.43 2.56


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Table 6PCAs results: the eigenvectors values of the first three principal components

Variable PC 1 PC 2 PC 3

Entry mode 0.0505 0.7041 -0.0233

Entry mode (in the future) 0.3275 0.6121 0.2215

Motivations0.5559 -0.2766 -0.2936

Advantages 0.5857 0.0472 -0.4974

Difficulty 0.4879 -0.2253 0.7853

Table 7The cluster analysis results

Total sample N Mean Std Dev Minimum Maximum

Entry modes 77 -1.248 0.690 -2.700 1.170

Entry modes for the future 77 -2.993 1.329 -4.390 0.260

Motivations 77 0.144 1.181 -3.600 4.270Advantages 77 0.781 2.221 -4.180 7.830

Difficulties 77 0.130 1.755 -4.630 5.030

Cluster 1

Entry modes 25 -1.559 0.652 -2.700 -0.750

Entry modes for the future 25 -4.390 0.000 -4.390 -4.390

Motivations 25 0.000 0.000 0.000 0.000

Advantages 25 0.000 0.000 0.000 0.000

Difficulties 25 -0.950 1.301 -4.630 0.250

Cluster 2

Entry modes 31 -1.171 0.711 -2.700 1.170

Entry modes for the future 31 -2.580 1.254 -4.390 0.260

Motivations 31 -0.419 0.805 -2.310 1.700

Advantages 31 -0.543 1.120 -4.180 1.420

Difficulties 31 0.460 1.476 -1.840 3.430

Cluster 3

Entry modes 13 -0.948 0.482 -1.760 -0.220


Motivations 13 0.494 1.634 -3.600 3.040

Advantages 13 2.868 1.840 1.260 7.580

Difficulties 13 -0.296 1.107 -2.040 1.360

Cluster 4

Entry modes 8 -1.059 0.756 -2.100 0.520


Motivations 8 2.211 1.096 0.860 4.270

Advantages 8 4.960 2.092 2.340 7.830

Difficulties 8 2.923 1.514 0.570 5.030

2124-smes in international contexts an italian perspective

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