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Small Firm Internationalization and
Business Strategy

An Exploratory Study of ‘Knowledge-intensive’ and
‘Traditional’ Manufacturing Firms in the UK

JIM BELL

University of Ulster, UK

DAVE CRICK

University of Central England, UK

STEPHEN YOUNG

University of Strathclyde, UK

The objective of this study was to explore the linkages between the overall
business strategies of small firms and their patterns, processes and pace of
internationalization. A qualitative approach was adopted, involving 30 in-
depth interviews with key decision makers of internationalizing small firms
based in 3 UK regions (15 ‘knowledge-intensive’ and 15 ‘traditional’ firms).
The findings suggest that business policies, including those linked to
ownership and/or management changes, had an important influence upon
the international orientation of many firms. There were close relationships
between product policies and market focus, with product or process
innovation often providing an important stimulus to international expansion.
However, differences existed in the patterns, processes and pace of
internationalization between small ‘knowledge-intensive’ and ‘traditional’
manufacturing firms. The implications of these results on firm strategy,
public policy and theory development are discussed and a series of research
questions are postulated for future investigation.

KEYWORDS: internationalization;‘knowledge-intensive’;SMEs;‘traditional’
manufacturing firms; United Kingdom

Introduction

The literature on the internationalization process of small firms has been
reviewed by a variety of authors (see for example Andersen, 1993; Leonidou and

23

International Small Business Journal 22(1)

Katsikeas, 1996). Therein, various conceptualizations are postulated including
contingency, establishment chain, ‘stage’, network and resource-based theories.
Recently, Coviello and McAuley (1999: 223) concluded that: ‘. . . SME [smalland
medium-sized enterprise] internationalization is best understood by
integrating major theoretical frameworks’ and called for ‘future research based
on a more holistic approach to conceptual thought, empirical work and methodological
development’ (see also Fletcher, 2001). Recognizing the variety of frameworks
employed in prior research in the area and the diverse findings, we report
on a recent study designed to further investigate issues pertaining to SME internationalization.
The aims of the research were: first, to explore internationalization
behaviour within the holistic perspective of small firms’ overall business
growth strategies; and, second, to identify any differences in the patterns,
processes and pace of internationalization of smaller ‘knowledge-intensive’ and
‘traditional’ firms within the manufacturing sector.

The research focused on small firms because of their recognized importance to
economic activity, employment, innovation and wealth creation in many
countries (Acs et al., 1997; Katsikeas et al., 1998). Moreover, improving the international
contributions of the small business sector is widely regarded as an
increasingly important policy priority and the focus of public policy support in
many countries (Crick, 1997; EIM/ENSR, 1993; United States Small Business
Administration [US SBA], 1993; McNaughton and Bell, 2001; Organisation for
Economic Co-operation and Development [OECD], 1997). Factors such as
changing consumer preferences, developments in manufacturing, communication
and information technologies, and changing competitive conditions
provide a favourable environment for small firm internationalization now and
into the future. Exploring the diverse experiences of ‘knowledge-intensive’ and
‘traditional’ firms is important from both academic and public policy perspectives
since within the former category, in particular, are ‘born global’ firms that
compete globally virtually from inception (Crick and Jones, 2000; Knight and
Cavusgil, 1996; McKinsey & Co., 1993; Madsen and Servais, 1997).

In this study, the term ‘internationalization’ is used in the same context as that
defined by Welch and Luostarinen (1988), as ‘the process of increasing involvement
in international markets’. Business strategy is used as an umbrella term to
denote the broad range of strategic options open to the firm, including both
organizational and functional management strategies, product/market strategies,
and diversification strategies.1 ‘Knowledge-intensive’ firms are defined, following
Coviello (1994), as those ‘having a high added value of scientific knowledge
embedded in both product and process’. Although the term is widely used to
describe ‘knowledge based’ firms, typically in information and communication
technologies (ICT), it has been extended in the present study to incorporate high-
technology manufacturing firms in other sectors (see also the Research Focus and
Method section).

The empirical research focused on ‘traditional’ or ‘knowledge-intensive’
manufacturing firms in three locations. At each, 10 in-depth interviews were
conducted with CEOs or Export Managers of internationalizing firms (5
‘traditional’ and 5 ‘knowledge-intensive’) i.e. making 30 interviews in total. The

Bell et al.: Internationalization and Business Strategy

patterns and pace of firm internationalization were investigated and the relationship
between domestic and international activity explored within the broader
context of the overall business strategy of the firms.

Following a review of extant theories of small firm internationalization, the
methodology adopted in the study is outlined and justified. Thereafter, findings
are presented and discussed and issues for future research identified. Finally, the
implications for research in the area and for public policy in support of small firm
internationalization are considered.

A Critical Review of the Theoretical Frameworks of Small
Firm Internationalization

Internationalization Behaviour

Much of the early literature on internationalization behaviour concludes that the
process involves a series of incremental ‘stages’ whereby firms gradually become
involved in exporting and other forms of international business. As they do so,
they commit greater resources to the foreign market/s and target countries that
are increasingly ‘psychically’ distant (Bilkey and Tesar, 1977; Johanson and
Vahlne, 1977; Cavusgil, 1980; Czinkota, 1982). Although the number of stages
differs, a common underlying assumption of extant ‘stage’ models is that firms
are well established in the domestic market prior to developing international
strategies. Despite continued enthusiasm and support among many researchers
for this notion of incremental internationalization (Leonidou and Katsikeas,
1996; Petersen and Pedersen, 1997; Ellis and Pecotich, 1998), criticisms of this
view were being made as long ago as the late 1970s (see for example Bell, 1995;
Buckley et al., 1979; Cannon and Willis, 1981; Reid, 1983; Rosson, 1984; Turnbull,
1987). Indeed, Andersen’s (1993) conceptual critique focused on the weak theoretical
underpinning of many of the models and the lack of congruence between
theory and practice. He concluded that their ability to delineate boundaries
between stages, or adequately explain the processes that lead to movement
between stages, was rather limited. Moreover, the applicability of ‘stage’ theories
to internationalizing service firms has also been questioned (Chadee and
Mattsson, 1998; Knight, 1999).

In the last decade a new stream of research has emerged into ‘born global
firms’ (McKinsey & Co., 1993; Madsen and Servais, 1997). Also known as ‘international
new ventures’ (McDougall et al., 1994; Oviatt and McDougall, 1994),
‘committed internationalists’ (Bonaccorsi, 1992) and internationally focused
‘knowledge-intensive’ firms (Bell, 1995; Boter and Holmquist, 1996; Coviello,
1994; Jones, 1999), these tend to be smaller firms formed by active entrepreneurs.
Typically, their offerings involve substantial value added, often due to a significant
breakthrough in processes or technology (Knight and Cavusgil, 1996). A
characteristic is that management adopts a global focus from the outset and
embarks on rapid and dedicated internationalization (Jolly et al., 1992; McKinsey
& Co., 1993; Bloodgood et al., 1996). According to Knight and Cavusgil (1996),
the emergence of such firms can be explained by recent trends such as advances

International Small Business Journal 22(1)

in information and communication technologies, the increasing role of niche
markets, and the growth of global networks, which are facilitating the development
of mutually beneficial relationships with international partners.

There is little doubt that these trends will increasingly exert a strong influence
on small firm internationalization. What is also clear from these authors’
discussion of the ‘born global’ phenomenon, is that firms with ‘an international
vision . . . from inception’, or soon thereafter, (Oviatt and McDougall, 1994),
present a substantive challenge to internationalization ‘stage’ theories and the
notion of incremental internationalization (see also Madsen and Servais, 1997).
Indeed, divergent empirical results have led many authors to seek alternative
frameworks to the internationalization process models.

The internalization/transaction cost paradigm represents a generally accepted
model in the international business field, with substantial empirical support
especially in respect of the foreign direct investment (FDI) decisions of
multinational enterprises. The paradigm has been applied to the early internationalization
stages by Anderson and Coughlan (1987) who argued that
integration of marketing and distribution functions may be preferred when the
firm possesses specialized knowledge and when agents are difficult to find.
However, McDougall et al. (1994) found that in some international new ventures,
entrepreneurs did not make internationalization decisions on the basis of lowest
cost locations; and neither did they attempt to internalize activities to the point
where the benefits of further internalization were outweighed by the costs.
Furthermore, strategic alliances were found to be common for international new
ventures even though the firms ran the risk of losing proprietary know-how
through opportunistic partner behaviour.

Increasing interest has also been shown in network theory and internationalization
(Benito and Welch, 1994; Johanson and Mattsson, 1988; Johanson and
Vahlne, 1992). Based on detailed case studies of four software firms, Coviello and
Munro (1997) conclude that:

... our understanding of the internationalisation process for small firms, at least small
software firms, can be enhanced by integrating the models of incremental internationalisation
with the network perspective. (Coviello and Munro, 1997: 379)

These authors suggest that this externally driven view of internationalization
(the external web of formal and informal relationships) provides additional
insights to the internally driven perspective of Johanson and Vahlne (1990). In
the latter, the evolution of internationalization is based on managers’ cognitive
learning and competency development, which gradually increases through
experience.

There is no question that network relationships with partners (both direct and
indirect) offer helpful new insights and require to be incorporated into models
or frameworks of small firm internationalization. However, the cause and effect
relationships are not yet totally clear. Indeed, it might be argued that networks
provide mechanisms to overcome resource deficiencies, rather than being drivers
of internationalization per se.

Recognition that internationalization is affected by multiple influences has led

Bell et al.: Internationalization and Business Strategy

to growing interest in contingency approaches. Such a view was articulated by
Reid (1983), but did not attract much attention until recently. However, in the
last decade Woodcock et al. (1994), Yeoh and Jeong (1995), Kumar and Subramaniam
(1997) – among others – have developed contingency frameworks in the
international business and exporting fields. In justifying this perspective, Kumar
and Subramaniam (1997) argue that the existing literature has not devoted much
attention to evaluating market selection and mode of entry decisions as interdependent
decisions. One might go even further and suggest that the range of
the firms’ internationalization decisions, incorporating product decisions, market
choice and entry modes, are made in a holistic way (a notion initially presented
by Luostarinen, 1979).

In a similar vein, Bell and Young (1998) and Coviello and McAuley (1999)
have argued that excessive attention has been paid to the merits of competing
theories and models rather than to their potential complementarities. The latter
authors conclude that SME internationalization is best understood by integrating
major theoretical frameworks. Bell and Young (1998) contend that the nature
and pace of internationalization is conditioned by product, industry and other
external environmental variables, as well as by firm-specific factors.

Indeed, firm- and industry-specific influences merit further investigation as
particular ‘critical incidents’ may impact on firms’ overall business strategies and
market focus. Firms may also experience ‘epochs’ of internationalization,
followed by periods of consolidation or retrenchment, or they may be involved
in particular ‘episodes’ that lead to rapid international expansion or de-internationalization
(Crick, 2002; Oesterle, 1997; Pauwels and Matthyssens, 1999).
These ‘episodes’ or ‘epochs’ may be triggered by environmental forces that
impact on the strategies of domestic or overseas customers and other network
partners, as well as those that directly influence the focal firm.

Business Strategy and Internationalization

Melin (1992) has highlighted the limited attention that has been paid to the link
between ‘internationalization theory’ and strategy issues at both conceptual and
practical levels. The absence of linkages is perhaps most evident in relation to
small firm strategies and internationalization. In some respects this situation is
surprising, given that Ansoff (1965) identifies new market development (i.e.
internationalization) as a viable strategy for rapid small firm growth in his
product-market expansion matrix, as an alternative to developing new
product/service offerings for the domestic market.

However, in other respects the lack of attention is less remarkable and may be
partially explained by a number of factors. First, much of the early literature
characterizes small firms’ export behaviour as essentially unplanned and reactive,
with firms responding to unsolicited orders or enquiries rather than pursuing
proactive strategies (Bilkey and Tesar, 1977). Second, many of these contributions
tend to regard international involvement as of secondary importance to
domestic market activities and something that firms only consider once they have
established a secure foothold in the home market. Thus, domestic and international
developments are often viewed as diverse strategic solitudes, rather than

International Small Business Journal 22(1)

complementary strategies for firm growth. Third, the financial and human
resource constraints of smaller firms are well documented, as is an absence of
formal planning (Carson et al., 1995). This ‘resource poverty . . . requires some
very different management approaches’ (Welsh and White, 1981), which often
reflect the implicit, rather than explicit, nature of the process in small firms
(Pennings, 1985). In these circumstances, small firm internationalization is often
considered to be ad hoc and export activity regarded as ‘at best . . . unplanned,
reactive and opportunistic’ (Bradley and Mitchell, 1986; Westhead et al., 2002).

Nevertheless, Mintzberg (1973) and others (Timmons, 1978; Gibbs and Scott,
1985; Shuman and Seeger, 1986) observe that a major factor in the continued
success and expansion of small firms is the strategic planning activity undertaken
by CEOs and that strategy formulation is essentially a ‘top-down’ process. In this
context, it should be recognized that the absence of an explicit and formal
strategy does not equate to the lack of a strategic vision, whether or not this
involves a global focus. It is suggested that strategic planning activity will become
more formal and sophisticated over the life cycle of the business.

However, in this context, some work indicates that the motivation to think and
act strategically may only be brought about by a crisis within the organization
(Aram and Cowan, 1990). Other research shows that the ability to use strategic
management practices appropriately is a function of the entrepreneur’s previous
experience (Bracker et al., 1988); and of contact with external advisors or non-
executive directors (Berry, 1998). The latter two studies related to small firms in
growth/small high-tech sectors, and are thus significant in the context of the
present work on ‘knowledge-intensive’ versus ‘traditional’ firms. Related work
also concerns the influence of management buy-outs (MBOs): a review of studies
in the USA, France and the Netherlands (Wright et al., 1992) indicated that
short- and medium-term improvements in performance and strategic focus, at
least, were closely associated with the incentives of MBOs.

More recently, Welch and Welch (1996) have attempted to develop a longitudinal
conceptual model to identify the interrelationships between the two
streams of international business inquiry, that is, internationalization and strategic
management. The authors stress the significance of the ‘strategic foundations’
(knowledge, skills and experience, networks, etc.) of the enterprise and its
external environment, and identify planned and unplanned routes to internationalization,
with networking important in both. They conclude by calling for
‘empirical studies that specifically focus on strategy and internationalisation
process interconnections’ (Welch and Welch, 1996: 25).

Andersen and Kheam (1998) used a resource-based framework to explore the
international growth strategies of small- to medium-sized Norwegian exporting
firms. Ansoff’s (1965) product-market expansion matrix is used to classify
alternative growth strategies vis-a-vis market penetration, market development,
product development, and diversification growth. Julien et al. (1997) also
proposed a typology of the strategic export behaviour of SMEs based on their
case study research. In addition, the importance of the wider business strategy
context in internationalization is implicit in a number of other studies (Melin,
1992; Préfontaine and Bourgalt, 2002). For example, Coviello and Munro (1997)

Bell et al.: Internationalization and Business Strategy

identify issues such as product diversification and acquisition as influences in
international development. Additionally, Bell’s (1995) study showed examples of
software companies that followed clients into international markets or sought to
be acquired in order to sustain domestic and principally international growth.

The increasing interest in ‘born global’ firms is important in this context too,
since for such companies the key business strategy of the firm is rapid and dedicated
internationalization. This phenomenon suggests that many firms no longer
regard international markets as ‘simple adjuncts to the domestic market’
(McKinsey & Co., 1993), but that business strategies are developed from the
outset with global markets in mind. Boter and Holmquist (1996) compared cases
of traditional manufacturing (engineering) firms with innovation-oriented small
firms. The former were integrated into the manufacturing systems of large
companies, subcontractors and customers; operated with a production-oriented
culture; had a local rather than global focus; pursued a stepwise international
expansion; and were often family-owned. The latter were much more dynamic,
independent, globally focused firms that internationalized rapidly, with a lower
orientation towards the domestic market.

Thus, extant research suggests that a greater understanding of both the
domestic and international behaviour of smaller firms is still required. Moreover,
critical interrelationships between domestic and export activities also need to be
explored within the context of the firms’ overall business strategies. The present
study seeks to address this lacuna and provide additional research and public
policy support perspectives on these linkages. The specific objective of the
enquiry was to explore the interrelationships between overall business strategy
and internationalization. A number of key issues were empirically investigated
in depth. These included:

•firms’ initial business strategies, growth objectives and international orientation;
•
the stimuli which influenced the choice of strategies and subsequent operational
decisions; and,
•
the role of internationalization in the overall business strategy of the firms.
Research Focus and Method

The research adopted a case study approach involving 30 in-depth semi-structured
interviews with Chief Executive Officers (CEOs) or export managers of
small-to-medium sized internationalizing UK companies. A sample of five
‘knowledge-intensive’ and five ‘traditional’ manufacturing firms was selected for
investigation in each of three locations (England, Scotland and Northern
Ireland).2 The research objective and decisions relating to the choice of method,
sample selection, data collection procedures and analysis are elaborated upon
hereafter.

As previously indicated, the study adopted Coviello’s (1994: 17) classification
of ‘knowledge-intensive’ firms as those ‘having a high added value of scientific
knowledge embedded in both product and process. Often, this knowledge is also

International Small Business Journal 22(1)

required in sales and marketing functions’. Although this term has mainly been
applied to ICT firms (often, in the computer software sector), the definition was
extended to include other manufacturing companies in recognition of the
growing technological sophistication of firms in other industry sectors. For
example, many firms in the printing industry, which were once very traditional,
now use the latest computer technology in design and production and often
distribute products by electronic means. Similarly, some clothing and textile firms
are now producing garments using new fabrics that have a very high technological
content and frequently employ computer aided design (CAD) and/or computer
aided manufacturing (CAM) processes. Among ‘traditional’ manufacturing
firms, such as electrical/mechanical engineering or furniture manufacturing, the
technological content of products need not necessarily be high, although some
quite sophisticated ‘knowledge-intensive’ processes may often be involved, for
example packaging in the food and drink industries.

As already indicated, the main objective was to explore the interrelationships
between business strategy and internationalization. In addressing this objective,
the research design attempted to avoid what Kamath et al. (1987) refer to as a
‘dominant use of logical-empiricist methodology’, which has ‘bedevilled’ international
research. Instead, a qualitative in-depth interview approach was
adopted in order to seek richer and deeper insights into the complex phenomena
under investigation and to attempt to answer and explain ‘why’ and ‘how’ type
research questions (Easterby-Smith et al., 1994; Eisenhardt, 1989; Yin, 1989).

The approach selected is consistent with a growing trend towards qualitative
methods in empirical enquiries at the marketing/entrepreneurship/internationalization
interfaces (Carson and Coviello, 1996; Coviello and Munro, 1997; Julien
et al., 1997). These are also increasingly prevalent in industrial network research,
which has a strong business internationalization focus (Axelsson and Johanson,
1992; Melin, 1992). Indeed, Easton’s (1995) robust epistemological defence
concludes that they ‘are a powerful research method and one particularly suited
to the study of industrial networks’.

Another persuasive argument for adopting such approaches in small business
research is that it may be the only way of obtaining information from the key
decision makers, given their noted reluctance to complete questionnaires.
Moreover, a typical lack of published information (in the form of shareholder
reports, commercial analyses, etc.), poor recording of internal data and a marked
reluctance of small business managers to divulge commercially sensitive information
also make other forms of enquiry particularly problematic (Carson et al.,
1995). Given the preceding considerations, the nature of enquiry, the size of the
target firms and evidence in the extant literature of network influences on internationalization,
in-depth interviews were considered to be the most appropriate
means of exploring the phenomena under investigation.

In selecting firms, the approach taken was consistent with that of Eisenhardt
(1989) who suggested that ‘random selection (of cases) is neither necessary or
preferable’. Indeed, she further asserts that ‘extreme examples’ are most appropriate
when seeking to extend theory. The recent literature provides compelling
evidence of differences in the internationalization strategies of ‘traditional’ and

Bell et al.: Internationalization and Business Strategy

‘knowledge-intensive’ firms (McKinsey & Co., 1993; Oviatt and McDougall,
1994). Consequently, these categories were chosen as the ‘extremes’ and groups
of small manufacturing firms from each were selected for the purposes of further
investigation and comparison.

The ‘knowledge-intensive’ group consisted mainly of electronics and information
technology firms, while the ‘traditional’ group was made up mostly of
engineering, food and textiles firms (see Table 1 for selected characteristics of the
firms). In all other respects, an attempt was made to match groups of firms at
each location. The basic selection criteria were that firms should:

•
be current exporters (a minimum export ratio or sales turnover was not
specified in order to obtain a sample of firms exhibiting various degrees of
export involvement);
•
employ less than 250 staff (in line with the UK government’s criteria for
defining SMEs);3 and,
•
be independent and indigenous (i.e. not subsidiaries of larger domestic or
international companies, to avoid potential resource and cultural influences
on decision-making).
The sampling frame was constructed using various regional/national SME
databases and directories of firms known to have an export involvement (such as
Scottish Enterprise and Northern Ireland Local Enterprise Development directories).
In addition, other published information available on the firms (press
reports, trade association listings, etc.) and the three researchers’ pre-existing
knowledge of firms in their own locales was used in the selection of the final
sample.

As already indicated, information was collected via in-depth interviews with
either CEOs or export executives (26 CEOs and 4 export executives, respectively).
In all but one of these cases, where the firm had been re-established, these
key decision makers had been involved in export development from the outset
and played a pivotal role in internationalization decisions (a crucial factor
identified by Miesenbock, 1988). Interviews lasting two to three hours were
supplemented by company brochures or other materials provided by the firms.
They were conducted in each location, using a pre-tested interview schedule (see
Appendix 1) and a data collection template designed to ensure consistency
between the researchers.

The interview schedule contained a number of structured questions designed
to gather data for classification purposes (firm size, age, export experience,
export ratio, first export market/s, current market/s, etc.). Wherever possible, this
information was triangulated with other on-line and secondary data sources. In
addition, a series of open-ended questions were used to probe the strategic directions
of firms and explore underlying reasons for key internationalization
decisions. These included questions on specific circumstances surrounding
particular episodes (such as the first internationalization decision, subsequent
market selection and entry decisions, etc.) and the rationale for why particular
decisions had been taken. Particular events that resulted in a change or refocusing
of business strategy were investigated in depth and the firm’s subsequent

International Small Business Journal 22(1)

Table 1. Characteristics of the Sample

Knowledge-intensive firms Traditional firms
(n) (n)
Period of establishment
Less than 10 years 3 3
10–20 years 9 8
More than 20 years 3 4
Size of firm (turnover in £m)
Up to 1 2 3
1.0–1.9 3 5
2.0–4.9 9 4
More than 5.0 1 3
Export experience
Less than 5 years 5 2
5–10 years 6 7
More than 10 years 4 6
Export initiation
Less than 2 years after start-up 3 3
2–5 years after start-up 4 3
5–10 years after start-up 3 3
Over 10 years after start-up 5 6
Export ratio (% of turnover)
Less than 20 4 4
20–49 2 8
50–69 5 2
Over 70 4 1

strategic directions were explored. These facilitated a wide-ranging discussion of
business and internationalization strategies in a manner that enabled respondents
to provide their own account of the way in which such strategies had
unfolded.

Structured questions were analysed manually to obtain a profile of participating
firms and compare the characteristics of the two groups. Thereafter, qualitative
techniques were used to systematically analyse open-ended questions,
undertake a thematic analysis and identify the patterns of response between
groups.

As can be seen in Table 1, the knowledge-intensive group and the traditional
group were very compatible by age and turnover. However, while traditional
firms tended to have slightly longer export experience, knowledge-intensive firms
had generally higher export ratios (see also Table 2). These variations suggest
differences in the pace of internationalization between the two groups. No
observable differences were found to exist between firms in particular regions;
nevertheless, generalizations should not be made due to the relatively small
sample size and their non-random selection.

In order to facilitate further discussion of the themes emerging from the
research, background information on each of the case study firms, including brief
details on age, size, products, markets and export involvement, is contained in

Bell et al.: Internationalization and Business Strategy

Table 2. Company examples are used to illustrate and support the results, which
are presented hereafter.

Findings

The research revealed a number of important general findings in each of the
broad areas of business strategy and internationalization being investigated, but
also identified a number of interesting differences in response between ‘knowledge-
intensive’ and ‘traditional firms’. Each of these areas is more fully elaborated
upon in turn.

The Firms’ Initial Business Strategy, Growth Objectives and
International Orientation

A number of factors appeared to exert a significant influence on initial business
strategies, growth objectives and international orientation of all firms. First,
ownership and management issues strongly influenced firms’ business strategies
and international focus; second, product and market development strategies
were closely linked; and third, the introduction of new process technologies often
forced firms to revise their strategic directions. However, in terms of patterns and
pace of internationalization ‘knowledge-intensive’ and ‘traditional’ firms responded
differently, with the latter being less aggressive in their growth strategies
and more cautious in internationalizing.

Ownership and Strategic Direction

There was evidence of an association between the policy established for the
business, overall company development and international focus. For example,
nine firms had undergone changes of ownership or management since their
establishment, mainly through MBOs but also due to mergers, acquisitions or
insolvency (cases K1, T2, K6, T5, K9, K11, T10, T11, T14). Often, these changes
led to a reappraisal of business strategies and/or a refocusing of business activities,
part of which included internationalization. Indeed, these episodes often
appear to be a defining point in the development of the firm. As one respondent
observed:

we were going nowhere internationally, or as a firm, until the current management team
bought the firm out. (CEO, case K1)

Both ‘knowledge-intensive’ and ‘traditional’ firms were affected. In the former,
MBOs were often linked to venture capital funding and/or financial support from
regional development agencies. The injection of financial resources facilitated a
strategy of acquisition-based growth for some firms: perhaps even more important
was the director-level expertise the funding agencies brought in areas such as
financial management skills and the disciplines of strategic planning, forecasting
and budgeting. As another CEO commented:

the injection of cash was important to us, but it was really the expertise and skill that
they [investors] brought that gave us a great push. (CEO, case K9)

Table 2. Basic Characteristics of Case Firms

Year No. of Turnover Products First Export Top Export Markets
Established Employees (£ m) Export Ratio (%)
Knowledge-intensive
Company
K1 1983 48 3.0 Card-operated electronic 1987 70 USA, Netherlands, Australia
systems
K2 1987 40 1.5 Electric transformers 1987 70 Netherlands, Eire
K3a 1976 75 3.5 Printing 1986 10 Hong Kong, Sri Lanka
K4 1984 62 2.0 Ventilation equipment 1992 11 Eire, Netherlands, USA/Canada
K5 1980 50 3.0 Electronic temperature 1994 25 France, Eire, Sweden
controllers & sensors
K6b 1980 35 3.0 Audio equipment 1993 50 Thailand, Malaysia, Kenya
K7 1983 7 0.25 Industrial calibration 1989 40 S. Africa, France, India
K8 1987 31 3.0 Electronic noise and vibration 1987 70 USA, Korea, Australia
analysis instruments
K9c 1983 20 1.0 Telecom equipment 1994 50 USA/Canada, Japan, Germany
K10 1979 15 0.6 Electrical machinery 1984 50 USA, Canada, Saudi Arabia
K11 1986 23 2.5 Underwater remotely operated 1990 55 Norway, Singapore, Brazil
vehicles
K12 1992 10 0.5 Industrial electronics 1992 60 Canada, Germany
K13d 1938 150 11.0 Printing/communications 1982 1–2 _
K14 1982 45 4.2 Beverage dispensing equipment 1986 80 Italy, Spain, Benelux
K15e 1972 80 1.0 Chemical plant contractor 1989 8 Canada, Saudi Arabia

International Small Business Journal 22(1)

Table 2. Continued

Year No. of Turnover Products First Export Top Export Markets
Established Employees (£ m) Export Ratio (%)
Knowledge-intensive
Company
T1 1977 46 1.7 Varied giftware 1979 75 Australia, USA
T2f 1979/1995 21 1.8 Beer 1990 3 Canada, USA, Spain
T3 1972 30 1.3 Household textiles 1974 20 Eire, Netherlands, Australia
T4 1975 150 1.0 Shoe components/industrial tapes 1992 55 India, Canada, Hong Kong
T5g 1961/1995 6 0.3 Machine and hand loom carpets 1966 40 Switzerland, Austria, Norway
T6 1983 100 4.8 Part-bake bread 1985 40 Eire, Portugal, Egypt
T7 1986 14 0.6 Confectionery 1991 20 Australia, Germany, Denmark
T8 1986 70 2.1 Equipment/furniture for disabled 1989 30 Germany, USA, Netherlands
T9 1972 50 4.0 Pet food 1980 25 Eire
T10h 1994 25 1.2 Marmalades, jams 1994 30 Denmark, USA, Canada
T11j 1892/1983 35 5.0 Processed fish 1991 63 France, Germany, Netherlands
T12k 1980 150 8.0 Socks 1980 15 Sweden, USA, Norway
T13 1972 6 >0.5 Assorted novelties 1991 10 Germany, Belgium, Netherlands
T14 1990 150 6.0 Yarn 1990 18 Eire, Sweden, Germany
T15 1983 150 4.5 Food containers 1990 20 Eire, Cyprus, France

Notes: aFirms operating in an industry traditionally perceived as traditional, but with knowledge-intensive products and processes; bMBO in 1985;
cMBO in 1993; dMBO in 1990; eThis is a service oriented firm, but gets involved with technical products via its sister company; fCompany went into
liquidation in 1995 but was purchased shortly afterwards; gCompany went into receivership in 1994 and was purchased from receivers in 1995;
hMBO in 1994; jCompany in decline and had plans to go into liquidation, and so 1983 was effectively a relaunch year for this family-owned business;
kMBO in 1990.

Bell et al.: Internationalization and Business Strategy

International Small Business Journal 22(1)

Typically, ownership and/or management changes led to a revitalization and
reorientation of business activities including, in some cases, rapid and dedicated
internationalization among what might be described as ‘born-again’ global firms.
In comparison, there was evidence that ‘traditional’ firms (including some family-
owned ones) tended to be generally less aggressive than others in pursuing
growth strategies and also appeared to be rather more reluctant to internationalize
(cases T3, T9, T11 and T14). Fear of losing control of the business through
any involvement by outside investors and the loss of ‘lifestyle’ benefits were
among the factors that limited growth, whether at home or abroad.

In both groups there were some examples of firms that had been content to
focus on the domestic market for a lengthy period, but that had then internationalized
quite aggressively. The motivation for such behaviour often
appeared to reflect a response to a ‘critical’ incident or event that triggered a
subsequent chain of events. As one CEO stated:

we were more than happy just to get company X’s business in the UK, but it was really
when they recommended us to an affiliate that exports really took off. Since then we
have had numerous referrals to other overseas associates. (CEO, case K1)

Product/Market Strategies

With respect to the components of business strategy, there were close interrelationships
identified between product and market strategies in the evolution
of firms, regardless of whether they had adopted a domestic or international
focus. In numerous cases, new product development was an essential prerequisite
to internationalization. For example, among ‘knowledge-intensive’ firms,
case K5 had introduced three distinct electronic control products/services since
its establishment; but it was not until the second of these was launched (which
the company ‘hoped would be an “international” product’) that international
business was feasible. This product was largely marketed in Europe where the
Sales Manager at the time had contacts and knew the market; whereas a third
product, targeted at the computer industry, was launched in the USA. Another
company, case K11, focused upon the global oil and gas industry after its MBO
in 1990. It entered into a series of related acquisitions to widen its product range
and strengthen its market position internationally. These acquisitions had a
positive impact on distribution structures and strategies in overseas markets as
well. Among ‘traditional’ firms, adaptation of existing products for new markets
was much more the norm.

The product range was also a critical factor in both business expansion and
retrenchment. For example, case K7, which had an advanced electronics-based
industrial calibration product at the time of launch, found itself overtaken by
lower priced, higher specified offerings from competitors and international sales
dwindled away. Similarly, competition from low-cost economies to supply a basic,
albeit design-intensive, product led to the decline of case T5, which produced
machine and hand loom carpets. In contrast, the rapid international expansion
experienced by cases K1, K6 and K9 can be clearly traced to a very strong
commitment to product innovation and the development and commercialization

Bell et al.: Internationalization and Business Strategy

of ‘state of the art’ electronic systems. In the case of K6, an audio equipment
manufacturer, these interrelationships are shown very clearly in the CEO’s
analysis of major issues for the firm’s development. In summary these included:

•
the development of ‘leading edge’ products to enable the company to
expand from its existing markets into new countries and regions;
•
related diversification into systems that can be incorporated into other
companies’ products; and,
•
the appointment and use of ‘associates’ in particular overseas markets to
monitor developments, identify opportunities and maintain contacts with
decision makers.
Another CEO highlighted the interrelationship between product/market and
overall business strategies:

From day one I realised that the Irish market was too small and that the UK Market
could not sustain us for long. So in designing the product, I needed to think about international
markets from the outset. (CEO, case K14)

Operations Strategies

Another emerging theme was the impact of process innovation on international
orientation. In a number of cases the acquisition of new process technology had
encouraged, or even required, companies to review and revise their strategic
direction and market focus. In some cases this propelled firms into international
markets, in others it merely accelerated the process. In the case of K14, a
producer of beverage dispensing equipment, the development of a new manufacturing
process and the in-house design of production equipment by the
owner/manager was central to the company’s domestic and international expansion.

The decision to purchase ‘state of the art’ equipment by the management of
K6 was driven by a desire to improve competitiveness in the home market.
However, this investment could not be justified without an expansion into international
markets. Case T8, which manufactures equipment and furniture for the
disabled, had also recently invested in new equipment to improve its domestic
and international competitiveness. It was envisaged that this investment should
enable the firm to exploit new market segments at home and abroad in the future.
The CEO observed:

we couldn’t have even begun to consider spending a fortune on this equipment without
the French and German business. Sales in the UK market just would not have justified
or supported this expenditure. However, the beauty of having this kit is that also makes
us much more competitive in the home market and our quality control has risen too.
(CEO, case T8)

Business Strategy and Internationalization

The small size of the UK market for ‘niche’ products provided a stronger impetus
to internationalize among ‘knowledge-intensive’ firms. In many cases, firms’
offerings had been developed for international markets and management had a
‘global’ vision from the outset. In contrast, ‘traditional’ firms tended to have a

International Small Business Journal 22(1)

domestic focus and overseas activity had often ‘evolved’ in a reactive manner due
to unsolicited enquiries, or difficulties in the home market.

Product Characteristics and Market Opportunities

The background to internationalization and the motivating factors were quite
diverse. Given the nature of the niche products and limited opportunities in the
UK market, an international orientation was a fundamental component of
business strategy for some firms from the outset. This was notably the case among
many of the ‘knowledge-intensive’ firms (cases K1, K2, K8, K11, K12 and K14),
although not all of them initiated overseas activities immediately. Cases K2 (an
electrical transformer manufacturer) and K11 are particularly interesting, insofar
as the UK market only became a target after more promising opportunities had
been exploited abroad. In contrast, many ‘traditional’ firms tended to have a
domestic market orientation at the outset (cases T2, T4, T7, T9, T11, T13) and
only began to focus on international markets at a later date. Typically, this
occurred when they were experiencing adverse trading conditions in the domestic
market such as a decline in sales, a downturn in the economy or increased
competition (cases T3, T4, T7). It was particularly interesting to note that in some
cases (T2, T5, T11) it took a ‘near death’ experience to persuade firms to look to
international markets.

New Product Development Process

Sector and product characteristics are probably the most significant factors in
explaining proactive or reactive new market development approaches. The
starting point for marketing strategy is the product offering and hence the new
product development process (NPD) is critical. For many of the ‘knowledgeintensive’
firms, NPD was focused upon products that could be marketed internationally.
For example, cases K1, K6, K8, K9 and K11 sought to design new
offerings suitable for key international markets, rather than for the domestic
market. In contrast, the ‘traditional’ companies tended to design products for the
home market first and then seek to adapt them for overseas markets in terms of
product specifications, ingredients, labelling, etc. Thus, moves to international
markets followed domestic activity. This was most notable among food sector
firms in the study (cases T2, T6, T7, T9 and T11).

Reactive Strategies

Receipt of an unsolicited enquiry or order sometimes provided the initial impetus
to internationalization. This was particularly true for many of the ‘traditional’
firms, (cases T2, T3, T4, T5, T7, T12, T13 and T14), but was also the trigger for
some of the ‘knowledge-intensive’ companies (cases K10, K13 and K15). Nevertheless,
the latter were generally proactive in seeking out international opportunities,
tended to employ formal screening procedures and undertook more
systematic research.

Bell et al.: Internationalization and Business Strategy

Role of the Decision Maker

The export development literature suggests that firms with greater exposure to
the international environment, ranging from key decision makers having lived or
worked abroad to experience of inward internationalization via imports etc., are
more likely to be receptive to stimuli and outward business activities (see for
example Aaby and Slater, 1989; Miesenbock, 1988; Reuber and Fisher, 1997).
Within the sample, there were many instances where executives had prior
international experience that had often been gained with previous employers. In
one case, the recruitment of a sales manager with an extensive knowledge of
European markets led to targeting of these markets. However, even when
individuals had no such prior experience, their general knowledge and understanding
of industries in which they operated often created a high level of
international awareness. This was most evident among the key decision makers
of ‘knowledge-intensive’ firms operating in global industries such as electronics,
oil or gas. Nevertheless, it was also apparent among some of the ‘traditional’
firms, especially the food and drink sector cases, where the UK’s membership of
the European Union (and the impact of the Common Agricultural Policy)
created a widespread awareness of international business. In addition, the major
European food shows were widely known and supported throughout the
industry.

Initial Market Selection and Entry Strategies

The market selection and entry strategies of ‘ knowledge-intensive’ firms were
more likely to be influenced by relationships with clients and global industry
trends, rather than by geographic or ‘psychological’ proximity of overseas
markets. There was less evidence of network relationships among ‘traditional’
firms, some of which had gravitated towards ‘psychic’ markets. Exporting modes
were prevalent in both groups as initial market entry strategies. In terms of
country choice, internationalization ‘stage’ models focus upon ‘psychic distance’
as an important determinant of the initial market selection decision. However,
the findings reveal that this was a determining factor in only a few cases and
simply one of a series of contributory factors for several other firms. In contrast,
other factors appeared to exert a fairly strong influence on country selection
decisions.

First, a significant number of ‘knowledge-intensive’ firms were influenced by
global industry trends and gravitated towards ‘lead’ market/s in their particular
field. Typically, the USA offered these firms the greatest prospects but other key
markets included European, Scandinavian and Asian countries. For those electronic
and info-tech firms proactively seeking export markets, the USA was an
obvious choice, but in some cases Asian markets were targeted after participation
in a trade mission. A good example from a different industry is that of case K14,
which manufactures dispensing equipment for soft drinks or beer that is used in
fast food outlets and/or licensed premises. It initially targeted Benelux and
Scandinavian countries for beer applications, as these were the home base of
large players in the industry such as Carlsberg, Heineken and Stella Artois. They
also targeted Australia to establish relationships with Fosters Brewery, which was

International Small Business Journal 22(1)

itself internationalizing rapidly at the time. The USA, home of McDonald’s and
other fast food giants, was the initial target for soft drink applications.

Second, in some cases, ‘client followership’ was an important factor in the
initial market selection decision. Existing contacts with UK clients sometimes led
to export opportunities elsewhere. For example, case K1 signed deals with Xerox,
Canon and Sharp in the UK, which led to new business abroad via UK clients’
international customer or dealer networks. Similarly, case K7 approached UK
contacts and obtained permission to approach their overseas agents or distributors;
this led to receipt of a first export order from South Africa. There were also
several cases where referrals by a client to a third party led to new export
business. As will be discussed hereafter, client followership was also a prevalent
influence on subsequent internationalization decisions as clients in the first
export market often provided leads in other markets.

Third, in at least two cases, decision makers’ pre-existing contacts gained from
a prior employment, led directly to a first export order. Cases K2 and K12 both
began exporting at start-up because the CEOs obtained orders from overseas
clients of a firm they had worked in before. Case K2 also entered a subsequent
export market in the same way. Together with client followership, this presents
strong evidence of the influence of network connections on initial export decision
and subsequent internationalization.

Fourth, and peculiar to a number of Northern Ireland firms (cases T3, T6 and
T9) was a decision to enter what is technically an export market (Republic of
Ireland) rather than expand further in the UK. The decision was made because
CEOs perceived the Irish marketplace to be less competitive than the UK, thus
presenting greater opportunities for growth. In all of these cases, products were
distributed via Irish retailers who had an established presence in Northern
Ireland and were already clients of the firms. Thus, knowledge of the market and
network connections were also contributory factors.

In respect of choice of entry modes and methods of distribution in the initial
export market, the vast majority of firms used agents or distributors, a few sold
directly to end users and in a number of cases others sold directly to wholesale
buyers or large retail multiples. Within the ‘knowledge-intensive’ sector, a
number of firms were able to adopt their clients’ established distribution channels
(for example cases K1 and K5). The tendency was to retain the original method
of distribution to service the market. Nevertheless, there were instances where
firms changed their initial distribution method at a fairly early stage, having
recognized that the original choice was not appropriate for the circumstances.

Subsequent Business Strategy and Internationalization

Differences were observed in the evolution of business strategy and the
processes, patterns and pace of internationalization of ‘knowledge-intensive’ and
‘traditional’ firms. The former expanded rapidly into a greater number of
markets and tended to adopt a more proactive approach to internationalization.
They were also more likely to change methods of distribution via licensing agreements,
strategic alliances or establishing overseas facilities. ‘Traditional’ firms
generally adopted a more incremental and reactive approach to international

Bell et al.: Internationalization and Business Strategy

expansion. While ‘knowledge-intensive’ firms appeared to be developing new
markets in a systematic manner based on established decision-making criteria,
there was evidence that ‘traditional’ firms continued to react to new overseas
opportunities in an ad hoc manner.

Subsequent Pace and Patterns of Internationalization

There were marked differences in the pace of internationalization between the
groups. Many ‘knowledge-intensive’ firms had established a significant network
of international distributors in a very short space of time. For example, case K1
currently has over 40 distributors worldwide; cases K8 and K14 both have more
than 30 international distributors and cases K2, K5, K7 and K9 have agents or
distributors in between 12 and 20 countries. In contrast, ‘traditional’ firms had,
in the main, entered fewer overseas markets (typically, 5 or 6), over a longer
period of time. In some cases, these latter firms had been quite aggressive in
seeking overseas agents or distributors, but evidence suggests that this reflected
a scattergun approach to international markets. In other cases, a degree of
desperation to obtain urgently needed new business from any source appeared
to be a major motivating factor. Targeting ‘lead’ markets, such as the USA, was
a dominant feature in the internationalization patterns of ‘knowledge-intensive’
firms, whereas ‘traditional’ firms were more likely to continue entering geographically
or psychologically ‘close’ countries.

Subsequent Market Entry Strategies

An assumption in the literature is that companies have choices in the method of
distribution/mode of entry (Anderson and Coughlan, 1987; Johanson and
Vahlne, 1992; Benito and Welch, 1994). However, evidence suggests that these
options were often limited to direct and indirect exporting at the outset, but that
as firms developed and sought to gain more business, alternatives began to be
considered. This was most apparent within the ‘knowledge-intensive’ group,
where some of the firms had used alternative entry modes for particular markets.
For example, case K8 signed a strategic alliance in the USA with Hewlett
Packard, where the latter provided R&D funding in exchange for the rights to
manufacture under licence in the USA. It also has a licensee in China and badge
labelling deals in Japan and the USA. Case K12 entered into a joint venture with
an overseas company. Case K14 has a licensing agreement with a US firm that
manufactures and distributes the product throughout North America but established
a joint venture in Australia. Cases K3 and K10 both established small-scale
overseas production and marketing facilities. The management of case K11
recognized the need for direct representation in Russia and the USA, but could
not afford a sales office. The solution was to employ market representatives who
are paid a salary plus commission, but work from home to save office costs. Cases
K6 and K9 both employ ‘associates’ in the Asia Pacific region that prospect
markets, generate enquiries and offer some customer support.

In contrast, among most of the ‘traditional’ firms, any changes in distribution
tended to be at the agent/distributor/direct selling level, with firms choosing an
appropriate method for a particular country. For example, case T2, a brewery,

International Small Business Journal 22(1)

sells on a direct basis to an agent in Spain, but via a food and drink agency in
Holland. Case T11, a fish processor, tends to sell to wholesale buyers in its target
European markets, except Spain where it has three agents because of a very fragmented
market. However, none of the traditional firms had engaged in other
distributive arrangements, or indicated their intention of doing so in the future.

Subsequent Business Strategies

It is evident from the preceding discussion that changes in strategic direction, in
many cases linked to changes in ownership and/or management, had an influence
on business strategies. The early decisions taken set in motion a subsequent series
of events involving a variety of strategic areas of business. These changes were
inevitably more important among the ‘knowledge-intensive’ firms given their
rapid growth and internationalization. Within some of these firms, venture
capital finance and an influx of expertise (and a trend to greater formality in
planning and strategy) supported acquisition as well as organic growth. Such
takeovers in turn provided additional human resources, including technical and
marketing capabilities, assets and intellectual property rights, and new products
catering for new market segments and requiring different distribution channels.

In one ‘knowledge-intensive’ company (K8), which makes electronic noise and
vibration analysis instruments, the aim was to supply a niche product to global
markets, with a phased roll-out to Europe, USA and Asia-Pacific via agents and
distributors. However, within 10 years of establishment it had become obvious
that the strategy of global spread and growth required support by new
products/services and/or new market segments if the company was to survive. It
was also evident that new modes of market entry would need to be considered.
At the time of interview, two acquisitions were pending in the UK and USA, the
latter identified from continuing network relations. Outside equity interests were
influential in this strategic redirection.

Among traditional firms, strategic change tended to be slower-paced and more
evolutionary in nature, once a decision on a particular strategic direction was
taken. The critical decision was commonly to develop/launch a new product,
sometimes requiring significant investment in factory and processing facilities or
in new product development (e.g. T2 formed a consortium with three small
brewers to redesign a beer bottle for their joint use). However, the influences on
these product decisions were quite different. In T2, a new owner, who bought the
firm from the receivers, initiated the NPD process. In another firm (T7), which
had a history in ice-cream retailing and small-scale production, the new product
opportunity came by chance. The company was approached by a local distillery
to produce whisky-flavoured fudge for sale in its factory shop. This led T7 to
launch a range of such products that virtually required the firm to go international
since the regional market was small and linked to tourism. In both of
these cases a critical ‘event’ resulted in a fundamental strategic reorientation of
the business.

Bell et al.: Internationalization and Business Strategy

Environmental Functional
Influences: Strategies:
Internal
firm resources
decision-maker characteristics Finance
management competencies
External Business Strategy Human Resources
favourable/unfavourable domestic
market conditions
favourable/unfavourable
Operations
international market conditions
industry/sector trends Marketing
globalization trends

Organic growth
Acquisition growth

Products Markets

Internationalization

Notes:
Formal relationships
Network relationships

Figure 1. Business Strategy and Internationalization Interrelationships

Discussion

The objective of this study was to explore the interrelationships between small
firms’ overall business strategies and internationalization; and to make comparisons
between the strategic behaviour of ‘knowledge-intensive’ and ‘traditional’
firms. In this way it was aimed to identify new issues and perhaps to see the beginnings
of a new research agenda. The tentative evidence from this 30-company
study is that there is much to be gained from this approach.

Figure 1, derived from this exploratory research and supported by the extant
literature, provides a diagrammatic representation of the interrelationships
between business strategy and internationalization. Presentationally, this is
complicated by the wide variety of interactions that may exist, but environmental
factors appear to be particularly important in initial business development. These
environmental influences are shown in the diagram as a form of continuum, since
MBOs, for example, are a mixture of internal and external effects (when external
equity is involved). It is evident from the current research (and many earlier
studies) that network relationships are important in internationalization and
these are represented in the diagram. In small firms particularly, there will be
network influences in a range of areas of activity within and outside the firm.

Many of the strategic influences and thrusts may be common in the early stages
of corporate development. In particular, the reorientation of business activities

International Small Business Journal 22(1)

as a result of ownership or managerial change (which was the initial driver for
more active business development in many of the sample firms), plus new
product development and process innovations, were of major significance.

Earlier work (for example Berry, 1998; Bracker et al., 1988; Wright et al., 1992)
has shown the importance of strategic management practices, of external
advisors and directors, and of MBOs in redirecting and stimulating business
development. This study has shown that such changes lead to international as
well as domestic growth. Family ownership, by comparison, was linked to a more
cautious and reluctant approach to internationalization. Although early growth
was strongly influenced by internal and external environmental factors, as firms
expand (especially using the acquisition route), complex interrelationships
emerge which may both influence and be influenced by internationalization.
There were also close relationships between the nature of product offerings and
the development of both domestic and international market opportunities in the
evolution of the sample firms. Furthermore, product and process innovation
appeared to provide an important stimulus to overseas expansion.

Generalizing from some of the ‘knowledge-intensive’ firms, the internationalization
process may emanate from a statement of corporate strategy, especially
where external parties are providing financial support. Typically this would
encompass marketing objectives including internationalization. The outworking
of such a strategy clearly has implications for the functional areas of business;
and each of the latter may represent either barriers to growth (e.g. managerial
deficiencies or capacity shortages) or stimuli (e.g. new management appointments
or tooling and design investment). The implementation of initial internationalization
strategies may thus see an iterative process of learning and gap
filling in other areas, if functions such as human resources and operations are to
support and reinforce the process.

For companies expanding through acquisitions, however, a takeover may
further influence the process, affecting internationalization directly and also indirectly
through the impact on other business functions. In terms of direct effects,
Case K11 provides an interesting illustration. The initial entry mode used by the
company involved the establishment of distributors in a range of international
markets as part of a ‘scattergun policy’ to tap small worldwide niche markets.
However, three acquisitions introduced high-value products with significant
customization requirements. As a consequence, the distribution emphasis
changed from distributors only to a mix of distributors and direct selling (in the
UK, USA and Russia). In the latter two markets a cost minimizing approach was
pursued with the employment of salaried sales persons working from home. In
respect of indirect effects, some of the features of the products from the acquisitions
were dated (e.g. control electronics). Since the company did not have a
significant in-house R&D capability, it sought a link with a German university to
make a joint proposal to the European Commission for R&D support.

While some of the findings of the present research indicate threads of
commonality, others indicate some clear differences between the business
strategies and internationalization processes of ‘knowledge-intensive’ and
‘traditional’ manufacturing firms. ‘Traditional’ firms followed a cautious,

Bell et al.: Internationalization and Business Strategy

Table 3. Internationalization Strategies

Knowledge-intensive Firms Traditional Firms
Motivation Proactive Reactive
Evidence of strategic thinking Adverse domestic market
and planning conditions
‘Niche’ offerings/small home Unsolicited/enquiries orders
market ‘Reluctant’ management
International from inception Cost of new production
Active search processes ‘force’ export
‘Committed’ management initiation
Patterns Concurrent Incremental
Near-simultaneous domestic Domestice expansion first
and export expansion
(In some cases exporting
preceded any domestic
market activity)
Lead markets ‘Psychic’ markets
Strong evidence of networks Limited evidence of networks
Pace Rapid Gradual
Fast internationalization Slow internationalization
(large number of export (small number of export
markets) markets)
Many markets at once Single market at a time
New product development of Adaptation of existing offering
‘global’ offerings
Method of Flexible Conventional
Distribution/Entry Use of agents or distributors, Use of agents/distributors or
but also evidence of wholesalers
integration with client’s Direct to customers
channels, use of licensing, joint
ventures, overseas production,
etc.
Subsequent Structured Ad hoc
Internationalization Evidence of a planned Evidence of continued reactive
approach to international behaviour to export
expansion opportunities
Expansion of networks Unrelated new customers

incremental approach both domestically and internationally, influenced in part
by the industry sectors in which they operated, as well as by managerial attitudes.
Strategic thinking and planning was more strongly in evidence within the ‘knowledge-
intensive’ firms, commonly supported by external advisors and non-
executive directors (and linked to external finance). Differences between the
two groups were evident in levels of commitment to internationalization, the
extent to which international strategies are planned, and regarding the methods
and tactics employed. These differences are synthesized in Table 3. Among

International Small Business Journal 22(1)

‘knowledge-intensive’ manufacturing firms, findings include an international
orientation from inception; a new product development process focusing upon
the requirements of international markets; a gravitation towards lead markets in
the particular industry sector; a planned and structured approach to overseas
markets; rapid internationalization; and more variety in market servicing modes.
These provide support for other recent work on the ‘born global’ phenomenon.

In addition, there are marked similarities with findings emanating from recent
research into knowledge-intensive service firms (Knight, 1999). This linkage is
important as it recognizes that knowledge-intensity is not restricted to particular
sectors or to service-intensive firms, but is increasingly important to many firms.
Indeed, it can be argued that knowledge-intensity and the degree to which a firm
possesses it, represents a significant competitive advantage for the firm in both
domestic and international markets.

Areas for Further Research

Based on the findings emanating from the exploratory research undertaken in
this study, future research could usefully focus on further investigation of a
number of key issues (where the approach is similar to McDougall et al., 1994;
Coviello and Munro, 1997). Namely:

•What additional factors influence firms’ initial business strategies, and how
do management and ownership factors interact with external environmental
variables in business growth?
•What are the critical strategic choices made by small firms in their early
growth years, and to what extent are these strategic decisions interrelated?
•What is the role of internationalization in the early growth of small firms,
and in what ways do other strategic decisions interact with and impact upon
the internationalization decision?
•
Does organic as compared with acquisition growth influence the balance
between domestic and international expansion?
•
How does the firm’s ‘state’ of internationalization and its international
growth proceed over time in comparison with its domestic growth?
•What additional factors encourage firms to internationalize rapidly after a
long period during which they have focused on the domestic market?
The above questions derive from the results of the present exploratory investigation
and now require further study. In the process of undertaking this further
research, there is a need to re-examine extant internationalization models and
frameworks. The results for ‘traditional’ firms in the sample tend to offer some
support for ‘stages’ models of internationalization, but internal and external
environmental influences are important too. For ‘knowledge-intensive’ firms, no
single model seems to have sufficient explanatory power on its own, a conclusion
which supports Coviello and McAuley (1999).

Given the holistic perspective on small firms’ strategies and internationalization
that is suggested here, the resource-based perspective may provide a useful
framework to integrate competing conceptualizations (Bell et al., 1998). Its basic
premise is that it is the firm’s ability to generate and build or leverage resources

Bell et al.: Internationalization and Business Strategy

and competencies that is the key to competitive advantage and organizational
survival (Barney, 1991; Grant, 1991; Wernerfelt, 1984). Small firms will respond
differently in their efforts to overcome resource/competence deficiencies in areas
such as finance and human resources, in both a domestic and international
context. Such responses will also be ‘contingent’ on the levels of resources the
firm has at its disposal (Reid, 1983; Woodcock et al., 1994; Yeoh and Jeong, 1995),
particularly in respect to international expansion where risks are likely to be
higher and the human, financial and knowledge resource requirements greater.
Thus, the decision to internationalize incrementally or rapidly and whether to
adopt atomistic or networked approaches are not only based on perceptions of
opportunity, but also upon the resources the firm has at its disposal or can
leverage from external sources.

In an internationalization context, the mode of entry chosen will be that which
facilitates a competitive position in the particular overseas market, subject to the
constraints imposed by resource shortages of various types. It may be simply a
mechanism by which to exploit the true competencies of the firm (e.g. unique
products, brand names, market segmentation skills); or it may represent a
competence in its own right. The resource-based perspective also assumes the
coordinated deployment of assets and capabilities in creating, producing and
marketing products. Technologies, product strategies, markets and marketing,
and competitive environments are interdependent and form a positive feedback
system. As with contingency approaches to internationalization, this argues
against a consideration of country market choice or mode of entry as independent
decisions. Moreover, particularly in knowledge-intensive sectors, a number
of key markets may be pursued concurrently and a variety of entry strategies to
these markets may need to be considered simultaneously.

Implications for Public Policy in Support of Small Firm
Internationalization

The results have implications for policy makers charged with supporting the
development of the small business sector. First, considerable policy enthusiasm
is currently being directed in many countries towards developing a ‘knowledge
economy’. Naturally, much of the focus is on new technologies (such as the information
technology and biotechnology sectors); however, as indicated by the
present research, knowledge-intensity is not restricted to these sectors, but is also
infiltrating more traditional sectors. In consequence, policy makers should recognize
that ‘knowledge-intensive’ firms may inhabit or be emerging in other (more
traditional) sectors.

Second, evidence indicates that ‘knowledge-intensive’ firms develop much
more dynamically than their ‘traditional’ counterparts. In these circumstances,
their support needs are much more immediate, with high levels of assistance most
likely to be required from the outset. This applies to various aspects of government
business policy in support of small ‘knowledge-intensive’ firms and in
providing assistance to enable them to build or leverage their resource base.
However, it is particularly important in respect to internationalization support
programmes that have, traditionally, assumed an incremental approach to the

International Small Business Journal 22(1)

process. If, as the evidence suggests, international and domestic expansion is
virtually concurrent (or, if the former actually preceded the latter), then the
design and delivery of such offerings must be fundamentally reconsidered.
Moreover, given the interrelationship between business strategy and internationalization,
it may also be argued that such programmes should place a
higher emphasis on management development and strategic issues rather than
focusing solely on the international dimension.

Consideration must also be given as to whether or not export support agencies
should prioritize support for ‘knowledge-intensive’ sectors with greater growth
potential, rather than more ‘traditional’ sectors whose long-term prospects may
be rather limited domestically and internationally. Finally, public policy makers
should recognize that supporting small firm internationalization involves much
more than merely attempting to stimulate export activity. Measures to support
inward technology transfer and help small firms to develop networks and supply-
chain relationships with larger indigenous and international companies located
in the home market must also be considered.

Conclusion

The findings presented in this comparison of the internationalization processes
and patterns of ‘knowledge-intensive’ and ‘traditional’ small UK manufacturing
firms suggest that some important differences exist in respect to overall business
strategies and approaches to internationalization between these types of firms.
They also indicate that strong linkages exist between market focus and strategic
direction. In turn, these findings have implications for theory development in the
field and public policy support for the small business sector, which are outlined
and discussed.

Notes

1. The literature commonly distinguishes corporate strategies, which concern vertical
integration and diversification and relate to the scope and boundaries of a firm’s activities,
from business strategies.
2. Selection of UK locations was based on proximity of the authors’ home universities.
As areas within the United Kingdom, there was no reason to expect different behaviour
patterns by firms, except in the case of Northern Ireland, which borders the Republic
of Ireland, a separate country.
3. A number of citations support this assertion both in government reports and in
academic studies such as Crick (1997). It is, however, consistent with the small firm
literature (see for example Storey, 1994).
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Bell et al.: Internationalization and Business Strategy

JIM BELL is Professor of International Business Entrepreneurship at the University
of Ulster. His main research interests are in the areas of small firm
internationalization and export development. Please address correspondence to:
Department of International Business, McGee Campus, University of Ulster,
Londonderry. [email: jd.bell@ulst.ac.uk]

DAVE CRICK is Professor of Marketing and International Entrepreneurship at the
University of Central England. His research interests include export policy
focusing on SMEs. Please address correspondence to: Business School,
University of Central England, Perry Barr, Birmingham, B42 2SU.
[email: david.crick@uce.ac.uk]

STEPHEN YOUNG is a Professor within the Strathclyde International Business
Unit at the University of Strathclyde. His research interests relate to exporting,
international business and economic development. Please address
correspondence to: Department of Marketing, University of Strathclyde,
Cathedral Street, Glasgow, G4 0RQ. [email: stephen.young@strath.ac.uk]

International Small Business Journal 22(1)

Appendix 1.
Interview Schedule
Profile of firm

Company age
Size (no. of employees/sales turnover)
Industry sector
Length of time exporting
Number of export markets
Export ratio (i.e. export sales as a percentage of total sales)
Top 5 export markets and year of entry to each

Pre-internationalization activity

Business idea and formation
Decision-makers’ backgrounds and experience
(education, work experience, overseas exposure, etc.)
Objectives
Early sales growth
Pre-internationalization experience
(e.g. importing, inward technology transfers, foreign contracts, etc.)

Which country?
Context in terms of positive/negative attitudes to internationalization
(e.g. previous rejection of opportunity)
Export barriers
(e.g. lack of knowledge, limited resources, other impediments)
Export stimuli
(e.g. solicited/unsolicited orders, client followership, targeting lead markets)
Internal discussion and deliberation
Size of order/project
Level of commitment (financial, human resources)
Exchange relationships with clients/partners
Views about future at time of order
Management of order/project (e.g. types of decisions taken)
Key decisions relating to internationalizaton
(e.g. choice of markets, mode of entry, marketing management decisions)
Early internationalization decisions
Repeat for countries 1-n (in
sequence of entry) and explore
changes in attitudes, motivation,
commitment, decision-making
Subsequent internationalization/business strategy decisions

Changes to entry mode, marketing managment decisions, relations, etc. in
existing markets
Principles in searching/identifying new markets
Decisions to withdraw from export markets or not pursue new opportunities
Product/service decisions and other marketing management issues
Ongoing export problems/barriers to internationalization
Sources of assistance (Government agencies, Chamber of Commerce, other)
Value of these sources (discuss each separately)
Internationalization in relationship to overall business strategy of firm
Changes in structure/organization/staffing as international business evolved

Bell et al.: Internationalization and Business Strategy

Internationalisation et stratégie commerciale des petites entreprises

Une étude prospective d’entreprises manufacturières ‘à forte intensité de connaissances’
et ‘traditionnelles’ au Royaume-Uni – Jim Bell

University of Ulster, Royaume-Uni

Dave Crick

University of Central England, Royaume-Uni

Stephen Young

University of Strathclyde, Royaume-Uni

Cette étude avait pour objectif d’explorer les liens entre les stratégies commerciales
globales des petites entreprises et leurs schémas, processus et rythme d’internationalisation.
Une approche qualitative a été adoptée, comportant 30 entretiens en profondeur avec
des décideurs clés de petites entreprises en cours d’internationalisation basées dans 3
régions du Royaume-Uni (15 entreprises ‘à forte intensité de connaissances’ et 15 ‘traditionnelles’).
Les résultats suggèrent que les politiques commerciales, y compris celles liées
aux changements au niveau de la propriété et/ou de la gestion, avaient une influence importante
sur l’orientation internationale de nombreuses entreprises. Il y avait des rapports
étroits entre les politiques en matière de produits et la concentration sur le marché, l’innovation
au niveau des produits ou des processus donnant souvent une grande impulsion à
l’expansion internationale. Toutefois, il existait des différences au niveau des schémas, des
processus et du rythme de l’internationalisation entre les petites entreprises manufacturières
‘à forte intensité de connaissances’ et ‘traditionnelles’. Les implications de ces résultats
sur la stratégie, la politique publique et le développement des théories des entreprises
sont discutées et une série de questions sont postulées pour des recherches futures.

Mots clés: internationalisation; ‘à forte intensité de connaissances’; PME; entreprises
manufacturières ‘traditionnelles’; Royaume-Uni

Internacionalizaci.n y estrategia comercial de las peque.as empresas

Un estudio preliminar de las empresas fabriles ‘intensivas en conocimiento’ y
‘tradicionales’ en el Reino Unido – Jim Bell

Universidad de Ulster, RU

Dave Crick

Universidad de Inglaterra Central, RU

Stephen Young

Universidad de Strathclyde, RU

El objetivo de este estudio es investigar los v.nculos entre las estrategias comerciales
generales de las peque.as empresas y sus pautas, procesos y ritmo de internacionalizaci.n.

International Small Business Journal 22(1)

Se adopt. un enfoque cualitativo, y se hicieron 30 entrevistas a fondo con las personas
responsables de adoptar decisiones en las peque.as empresas en v.as de internacionalizac.n
en 3 regiones del RU (15 empresas ‘intensivas en conocimiento’ y 15 empresas
tradicionales). Los resultados indican que las pol.ticas comerciales, incluidas las relacionadas
con los cambios de propiedad y/o gesti.n, ten.an gran influencia sobre la
orientaci.n internacional de muchas empresas. Hab.a estrechos v.nculos entre las pol.ticas
de los productos y el enfoque del mercado, con la innovaci.n del producto o proceso
sirviendo a menudo de est.mulo a la expansi.n internacional. No obstante, exist.an diferencias
entre las pautas, procesos y ritmo de internacionalizaci.n entre las peque.as
empresas fabriles ‘intensivas en conocimiento’ y las tradicionales. Se discuten las inferencias
de estos resultados de la estrategia empresarial, pol.tica p.blica y desarrollo te.rico
y se formula una serie de preguntas indagatorias para una investigaci.n futura.

Palabras claves: internacionalizaci.n; ‘intensiva en conocimiento’; PYME; empresas
fabriles; Reino Unido

Internationalisierung mittelst.ndischer Betriebe und Unternehmensstrategie

Eine Forschungsstudie über ‘informationsorientierte’ und ‘traditionelle’ Fertigungsunternehmen
in Gro.britannien – Jim Bell

Universit.t von Ulster, Gro.britannien

Dave Crick

Universit.t von Mittelengland, Gro.britannien

Stephen Young

Universit.t von Strathclyde, Gro.britannien

Das Ziel dieser Studie war, die Zusammenh.nge zwischen der Gesamtunternehmensstrategie
mittelst.ndischer Betriebe und ihren Strukturen, Prozessen und dem
Tempo ihrer Internationalisierung zu untersuchen. Zu diesem Zweck wurde eine qualitative
Vorgehensweise angewandt, in deren Rahmen 30 Tiefeninterviews mit wichtigen
Entscheidungstr.gern der Internationalisierung mittelst.ndischer Betriebe mit Sitz in drei
verschiedenen Regionen Gro.britanniens (15 ‘informationsorientierte’ und 15 ‘traditionelle’
Firmen) durchgeführt wurden. Die Ergebnisse der Studie weisen darauf hin, dass
die Unternehmenspolitik, einschlie.lich der Verfahrensweise bei Inhaber- bzw. Managementwechseln,
einen wichtigen Einfluss auf die internationale Orientierung vieler Firmen
hat. Es ergaben sich enge Zusammenh.nge zwischen Produktpolitik und Marktausrichtung,
wobei Produkt- bzw. Prozessinnovation h.ufig einen wichtigen Impuls für internationale
Expansion lieferte. Es bestanden jedoch Unterschiede in den Strukturen,
Prozessen und dem Tempo der Internationalisierung zwischen den ‘informationsorientierten’
und den ‘traditionellen’ Unternehmen der mittelst.ndischen Fertigungsunternehmen.
Im Rahmen des Artikels werden die Konsequenzen für die
Unternehmensstrategie, .ffentlichkeitspolitik und Theorieentwicklung besprochen und
es werden eine Reihe von Fragen für zukünftige weitere Forschungsstudien aufgeworfen.

Schlagw.rter: Internationalisierung; ‘informationsorientiert’; Mittelstand; ‘traditionelle’
Fertigungsunternehmen; Gro.britannien