Edited by Craig C. Julian
Chapter 2: Dynamic capabilities and international performance of SMEs: the interaction effect of relational social capital
The business environment was never as global, interrelated and interconnected as it is today – globalization has opened up a myriad of opportunities for firms (Leonidou, 1995). Despite the vast number of barriers faced by firms in attempting to internationalize their activities, entering foreign markets is often seen as a crucial step for many firms, particularly for small and medium-sized enterprises (SMEs). This is due to their lack of experience, skills and know-how, governance structures, limited capital and management, time and information resources (Etemad et al., 2001; Buckley, 1989). Earlier studies have found that the internationalization process is typically a gradual process of knowledge acquisition to reduce uncertainty in the foreign operating environment. One of the most noticeable models, the Uppsala model, views internationalization as an incremental process that depends on the firm’s experiential knowledge of foreign markets (Johanson and Wiedersheim-Paul, 1975; Johanson and Vahlne, 1977). This model assumes that firms first develop their activity in the domestic market, then initiate their internationalization process by a low commitment strategy, and that the process of leading to an increase of international involvement is gradual. This process is restricted to a specific country market and this entrance, associated with the development of resources allocated to that market, mainly depends on the level of knowledge (objective and experiential) that the firm accumulates during different incremental stages. While the objective knowledge allows access to market opportunities, the experiential knowledge is presented as the critical knowledge for firm survival.
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