International Entrepreneurship in Small and Medium Size Enterprises
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International Entrepreneurship in Small and Medium Size Enterprises

Orientation, Environment and Strategy

Hamid Etemad

The contributors to this volume explore the emerging patterns of SME growth and international expansion in response to the evolving competitive environment, dynamics of competitive behavior, entrepreneurial processes and formulation of strategy.
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Chapter 3: Capital Structure and the Pace of SME Internationalization

Hamid Etemad


Rod B. McNaughton and Jim Bell INTRODUCTION The pace at which a firm internationalizes is an important characteristic of its international marketing strategy. A set of ‘pre-conditions’ creates an environment in which early and rapid entry into foreign markets is a strategy that may be pursued successfully by some SMEs (Madsen and Servais, 1997, pp. 565–7). A substantial stream of literature developed over the past decade has contributed to our understanding of when the pace of internationalization is likely to be quick. Influences are summarized in models such as that offered by Kandasaami (1998) and Pedersen and Petersen (1998) in case research focused on international new ventures (McDougall et al., 1994), and in quantitative studies on time to foreign market entry (for example, McNaughton, 1999). Taken as a whole, this literature identifies a large number of possible influences, including the orientation and experience of key decision makers, firm characteristics, domestic market size, quality of the innovation (especially knowledge intensity), industry conditions and other factors. Absent from the list of influences that have been intensively studied is the capital structure of the firm. The constraints of inadequate ‘financial resources’ are a frequently cited barrier to internationalization (for example, Bannock and Peacock, 1989) and the influence of ‘firm size’ is another theme for investigation (for example, Bonaccorsi, 1992; Ali and Camp, 1993). However a well-developed theory of the potential interplay between capital structure and the ability to fund internationalization has yet to emerge. This gap in the extant literature is particularly...

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