SMEs are the important part of economic systems. In fact, in last four decades, focus has been shifted towards SMEs due to their crucial role in the growth of industries and overall economic conditions of countries (Atik, 2012). However, SMEs do not strategically adopt planned approach of internationalization. Therefore, to analyze these approaches, this report will critically discuss different options available to SMEs. In addition, challenges of moving towards geographically or psychologically distant markets will be also evaluated. It will provide an overview about the advantages and disadvantages of using different strategic approaches by SMEs.

Strategic Approaches  :  SMEs have become an important part of emergent nations. It is so, as they are not observed as the miniature of large MNCs, but are referred as the small firms with their own identities. 

Economic Approach:

According to this approach of internationalization, SMEs can extend their international activities within the vertical integration (Laghzaoui, 2011).  Similarly, as per the transaction cost theory developed for advancing the economic approach of internationalization, organizations can also make selection between externalization and internationalization of their activities. Following are the advantage and disadvantages of this approach:

Advantages: The advantage of using economic approach is ownership advantage. By using this approach, SMEs can accumulate tangible assets including experience and technological capabilities (Ruzzier and Konečnik, 2006). For example, SMEs operating in the hotel industry of Slovenia dominated the country due to the domestic conditions and size of the country (Ruzzier and Konečnik, 2006). By moving towards a geographical location, SMEs can take location advantage due to productive and institutional factors. Internalization advantage can be taken by SMEs by managing or coordinating their business activities effectively. For example, Metsch Refractories has become UK leader, as it selected European market to pursue its internationalization process (Cui, Walsh and Gallion, 2011).

Disadvantages: The drawback of using economic approach is the difficulty or issue in extrapolating the theoretical contributions for SMEs due to their context. In addition, major role of social relations in transactions is also not considered in economic approach of internationalization. Furthermore, the lack of managerial competencies, financial, physical and technological resources can also restrict SMEs to go international. Hence, all these are disadvantages of employing the economic approach.

Success Strategy: By using technological competencies and experiences, SMEs can take ownership advantage. This ownership advantage can be used to attain success for the process of internationalization by the SMEs. Along with this, by moving towards geographical locations that have promising productive or institutional factors, success probability can be increased by SMEs. By managing and coordinating activities internally, it is possible for the SMEs to enhance their success chances to become international. With the help of productive resources, SMEs can also improve their access to market abroad. Utilization of critical resources can also assure success for SMEs in the future. Therefore, by following or adopting all these strategic moves, SMEs can attain their intended goals within timeline.

Opportunistic Portfolio Approach:

According to this approach, internationalization process is followed by using diversification strategy. In this approach or model, SMEs can reduce their risk by entering into several countries in a simultaneous manner. For example, B2B high technology firms operating in food industry, paper, petrochemical and pharmaceutical in Nordic attained success due to this approach (Smolarski and Wilner, 2005). Following are the advantage and disadvantages of using this strategic approach of internationalization:

Advantages: By using opportunistic portfolio model, SMEs can avoid or minimize risk of doing business internationally. Hence, this approach is best suitable for SME entrepreneurs who want to control risk while making business decisions.

Disadvantages: The drawback of using opportunistic portfolio model is associated with the behavior of entrepreneur. For example, if the entrepreneurs apply a speculative behavior, it becomes difficult to leverage opportunistic portfolio model. So, this model or approach of internationalization is only successful for investor behavior.  For example, FCX Systems was domestic, but it got chance to become international when it got a customer from China, but it did not pursue other countries for internationalization (Cui, Walsh and Gallion, 2011). So, it proved difficult for the company.

Success Strategy: By using opportunistic portfolio model, risk related to the resources, technological, economic or socio-cultural can be controlled. Hence, the SME entrepreneurs only want risk reduction in their business ventures. In this manner, success chances can be maximized. Along with this, by doing business in two or more countries that present equal risks, it is possible to control risk and take benefits of success simultaneously by the entrepreneurs. It is so, as if business is done in single country, it can leave the entrepreneurs in trouble due to higher risks.

Network Approach:

According to this approach, position of the organization in its network plays an important role in the process of internationalization. This approach is also based on Uppsala model, but now improved. For internationalization, there are three defined stages that are prolongation, penetration and integration. With the help of prolongation stage, network can be integrated. Penetration can be defined as the stage of developing the position and increasing its commitment and resources.

Furthermore, in the integration, the organizations are linked up to national networks. It helps to coordinate business activities for advanced internationalization. In addition, with network approach, SMEs can also become main actors once they acquire required experience and knowledge of foreign markets.

By using network, technical, financial and commercial relations are developed with other organizations. It further assists in becoming international at wider level for the SMEs. For example, by using customer contact and feedback, Metsch Refractories ventured into UK market for internationalization. It proved helpful for the company to expand its business (Cui, Walsh and Gallion, 2011).

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