International Journal of Advanced Research in Management (IJARM), ISSN 0976 6324 (Print), INTERNATIONAL JOURNAL OF ADVANCED RESEARCH ISSN

N 0976 6332 (Online), Volume 3, Issue 2, July-December (2012)

IN MANAGEMENT (IJARM)

ISSN 0976 - 6324 (Print) ISSN 0976 - 6332 (Online) Volume 3, Issue 2, July-December (2012), pp. 01-10 IAEME: www.iaeme.com/ijarm.html Journal Impact Factor (2012): 2.8021 (Calculated by GISI)
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INTERNATIONALIZATION FROM SME PERSPECTIVE WITH REFERENCE TO PUMP AND MOTOR MANUFACTURING INDUSTRY OF COIMBATORE DISTRICT
Ms.G.JAYANTHI RESEARCH SCHOLAR, KARUNYA UNIVERSITY KARUNYA SCHOOL OF MANAGEMENT COIMBATORE, TAMIL NADU Email Id :jayanthiboopal@hotmail.com

Dr.R.AMUDHA Associate Professor, KARUNYA UNIVERSITY KARUNYA SCHOOL OF MANAGEMENT COIMBATORE, TAMIL NADU Email Id: amudha@karunya.edu ABSTRACT In the era of global business, Internationalization of firm has been a critical factor for companies and paid attention to small and medium sized enterprises(SMEs). In this article we examine the internationalization process of SMEs. From the earlier studies it is evident that the manufacturing firms follow the Uppsala model of Internationalization by starting the company to operate in domestic market and slowly advancing to other countries. According to Uppsala model of Internationalization slow and incremental base of Internationalization process will reduce the risk factor and increased commitment will lead to an increased investments in global operations. Another issue that we are dealing with, is, experience from early inward internationalization activities can influence on outward international activities in small and medium sized firms. The presented empirical findings are based on the 143 small and medium sized pump and motor manufacturing firms the researchers had through mail surveys and in- depth interviews. The

International Journal of Advanced Research in Management (IJARM), ISSN 0976 6324 (Print), ISSN 0976 6332 (Online), Volume 3, Issue 2, July-December (2012)

results show that, initial export markets are closely associated with cultural and Geographical factors. The initial mode of Operation tend to be Direct exporting. Important factors when internationalizing seem to be the increased commitments and increased investments and also the other variables such as managements interest in international activities, previous international experience etc. Key words : Entrepreneurship, Internationalization, SMEs I. Introduction Internationalization is a phenomenon researched intensively over the last few decades from a variety of viewpoints including organizational theory, marketing, strategic management, international management and small business management. Issues such as international decision making and management, the development of international activities and factors favoring internationalization have been studied for both large as well as small businesses. The focus of this study is on small and medium enterprises (SMEs) and their strategic internationalization and export behaviour. Given the nature of todays market place, SMEs are increasingly facing similar international problems as those of larger firms. II. Background of the study Coimbatore is a multi sectoral cluster having a large number of pumps & motors manufacturing units and light engineering enterprises, in addition to the large number of foundries. Since local pumps and motor industry is one of the main customers for local foundries, one would expect stronger linkages across the supply chain resulting in increased vertical cooperation. The demand in the domestic market is so huge that the industries have never really explored the possibility of exports of this product due to which the Indian pumps & motors industry was not very conscious about modernization and up gradation and was quite satisfied with its casual approach. Globalization, which has opened the doors of India to multinationals, coupled with growing concerns of pollution control, water and waste water treatment, and demand for energy efficient systems is changing the scenario of the Industry. III. Profile of the Industry : The Pumps & Motor cluster The motor & pumps cluster in Coimbatore accounts for around Rs 2000 crores i.e. 40% to 50% of the value produced in the country. Out of the total export of 400 Crores from Coimbatore the pumps & motors export is approximately Rs.30 crore. The pumps & motor units are spread across the rural, urban parts of the district and scattered all over the city. The average investment in plant & machinery of pumps & motors units is between. Rs.15- 25 lakhs/unit. Agriculture sector consumes about 35% of the total power generated in running the electrically operated pump sets. Most farmers use inefficient non ISI marked pump sets which consume more electricity and deliver less output. There is a potential of about 25% to 35% improvement in the efficiency of these pump sets by affecting minor/major rectification and shifting to ISI marked pumps IV. Objectives 1. The main objective of this study is to know the motives of Internationalization and the role of firms management in International activities 2. To analyse the role of foreign sales and the mode of operations in foreign countries. 3. To find out the importance of the triggering factors to operate internationally by the exporting firms

International Journal of Advanced Research in Management (IJARM), ISSN 0976 6324 (Print), ISSN 0976 6332 (Online), Volume 3, Issue 2, July-December (2012)

V. Internationalization theories The most traditional way of describing the process of Internationalization is by the U model or the Uppsala Internationalization model ( Johanson&Vahlne 1977) The U model contains different steps that describe the firms level of Internationalization. In the beginning the firm has no regular exports and initiates its internationalization process by direct exporting to a foreign country. The basic assumptions of the model is that one cycle of events constitutes the input of the next. The stage model has been criticized in different respects for being too deterministic not emphasizing on the social networks in the business. The Network approach of Internationalization is most often applied on vertical relationships, between sellers and buyers. Social networks have been pointed out as extremely important for entrepreneurs. According to Zahra and George (2002), the term International Entrepreneurship first appeared in the article by Morrow in 1988. Morrow (1988) suggested that advancements in technology, declining cultural barriers and increasing cultural awareness has opened once-remote foreign markets to all kinds of companies; small firms, new ventures as well as established companies. Soon after that, McDougalls (1989) empirical study comparing domestic and international new ventures paved the way for academic study in international entrepreneurship (McDougall &Oviatt, 2005, p. 537). International entrepreneurship theory argues that individual and firm entrepreneurial behaviour is the basis of foreign market entry (Mtigwe, 2006, p. 16). A modification of McDougall and Oviatts (1994) definition of entrepreneurship is given by Stevenson and Jarillo (1990, p. 23), for them entrepreneurship is a courageous managerial value creation process through which an individual engages innovative, proactive, calculated risk-taking behaviour designed to prosecute foreign business opportunities. According to IET theory, the key to internationalization nowadays is the entrepreneur. He is the one that possesses the skills and enough information to measure the opportunities in the market with ability to create and make stable relationships with other firms, suppliers, customers, government and media VI. Data Collection & Research The research was carried out during Feb- June 2012. The target group was Pump and motor manufacturing companies of Coimbatore District with less than 500 employees. The companies were mostly within manufacturing engineering products like Pumps and Motors. The sample was drawn from a national database and all the firms within the selected business areas were chosen.A structured questionnaire was used to collect the data from the respondents. The questionnaire was answered by Export managers, Marketing Managers or by the Owner founder of the Companies. The average number of Employees was 60 and the average turnover was about Rs.4 to Rs.40 crores. The turnover gained from the foreign business activities was in an average of 25% to 50 % which was answered by 58 respondents out of 143 sample size. i.e, 41% of the respondents belong to this category. VII. Empirical Findings There are many possible driving forces behind a firms internationalization pattern. These factors are generally divided into two categories: proactive and reactive motivating factors. The former group consists of managements perceived benefits or opportunities. For instance, increased revenues or profits may motivate the firm to enter the international arena. The second group, i.e., the reactive motivators, refers to a set of motivators caused by the firms response to environmental changes. For instance, overproduction, declining domestic sales, excess capacity and saturated domestic markets may cause the firm to explore new global markets.
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International Journal of Advanced Research in Management (IJARM), ISSN 0976 6324 (Print), ISSN 0976 6332 (Online), Volume 3, Issue 2, July-December (2012)

7.1 Motives of Internationalization There are two factors that influence SMEs internationalization: proactive and reactive. From Table 1,127 companies( 88.8%) have opted international operations through proactive motives and only 16 companies have opted the reactive motives for entry into international markets. Table 1- Motives of Internationalization
S.No 1 2 Motives of Internatioanlization Pro activeness Re activeness Total Frequency 127 16 143 Percent 88.8 11.2 100.0

Table 2 Reactive Motives

S.No 1 2 3 4 Reactive motives of internationalization Over Production Declining Domestic Sales Excess capacity of production Saturated domestic markets. Total Frequency 2 0 10 4 16 Valid Percent 12.5 0 62.5 25.0 100.0

From Table 2, it is observed that none of the company has quoted that decline in domestic sales is the reactive motive for internationalization. But Pump and Motor manufacturing companies are having good domestic market and the ethnocentricity or the strong home market makes the selected Industry for their motive of Internationalization. 127 companies have internationalized through the Entrepreneurs pro activeness in entering international markets. 7.2 Reasons for Internationalization The Proactive and Reactive motives shape the SMEs reasons to go international. Table 3 -Reasons for Internationalization
S.No. 1 2 3 4 5 6 Reasons for Internationalization Increase in Profits Lower demand in domestic markets Owners interest in going to international markets Market expansion Product characteristics Organizational Goals Total Frequency 44 2 46 22 12 17 143 Valid Percent 31 1.4 32.1 15.3 8.4 11.8 100

Table 3, suggests that most of the SMEs analysed, enter international markets because of market opportunity , expansion and profit. 44 Companies have chosen Increase in profits, 46 opted Owners interest in going to international markets and 22 have suggested market expansion are the main reasons for international activities.Product characteristics are also the reason for exploring new markets since many companies manufacture their products with International standards supported with R & D facility.Lower demand in domestic market was not selected by respondents since the selected units are having a strong home market base.

International Journal of Advanced Research in Management (IJARM), ISSN 0976 6324 (Print), ISSN 0976 6332 (Online), Volume 3, Issue 2, July-December (2012)

Table 4- Operation Mode in International outward activities

S.No 1 2 3 4 5 6 7 Mode of Operations Direct export to end customer Direct export & through Foreign agent Domestic agent Importer/ reseller( distributor) Direct Export & through Sales Office Joint Venture Others Total Frequency 79 42 2 2 12 2 4 143 Percent 55.2 29.3 1.4 1.4 8.4 1.4 2.8 100.0

The operation modes, given in Table 4, used initially for foreign sales were mostly direct export to the end customer, secondly selling through an importer or a reseller and thirdly through a foreign agent. From the above table it is clearly stated, that direct export to the end customer is by far the most popular operation mode. Secondly we have foreign agent and other modes are through importer or reseller, having a sales office and also two companies are having joint venture with the foreign countries, other 4 companies are foreign companies having their own subsidiaries in Coimbatore. Knowledge about foreign markets is gained when using direct export to the end customer. When using importers or foreign agents the knowledge about the end customer and the market is low. As it can be concluded, that when companies started to export to the other countries Direct Export mode is the most popular one. 7.3 The Initial Entry Into Foreign Markets The most important in the beginning is the importing countries such as, Indian subcontinents and Middle east. 70 firms are exporting to Indian subcontinents which include Malaysia, Singapore, Australia, UAE, Burma, Srilanka, Taiwan, Turkey, Europe, Dubai, Japan, USA, UK, Africa, East middle Africa, South Africa Caribbean and SAARC Countries. Much impact on the companys decision to start operating internationally was the managements interest in Internationalization, foreign enquiries about the products or services and the motive of profit maximization and business diversification. Table 5, shows 40.6% have 26-50% of export sales and only 22.4% have above 50% of share in foreign sales. Table 5 -Share of Foreign Sales in the Market.
Share of Foreign sales 1 Below 25 % 2 26-50% 3 above 50% Total Frequency 53 58 32 143 Percent 37.1 40.6 22.4 100.0

Table 6 - Characterization of the company according to the Foreign Sales.

Characterization of the Company 1 Occasional 2 quite regular 3 Highly regular and continuous Total Frequency 30 79 34 143 Percent 21.0 55.2 23.8 100.0

International Journal of Advanced Research in Management (IJARM), ISSN 0976 6324 (Print), ARM), ISSN 0976 6332 (Online), Volume 3, Issue 2 July-December (2012) olume 2,

In the above table 6, out of 143 companies 79 companies are the quite regular companies, ite exporters and 23.8% of the respondents are highly regular and continuous exporters.
Table 7 Speediness of Internationalization 7S.No 1 2 3 4 Speediness of Internationalizations upto 5 years 6-15 years above 15 years ove Foreign Companies Total Frequency 26 70 43 4 143 Percent 18 49 30 3 100.0

Table 7, shows that, out of the 143 companies, 26 companies have taken hardly 5 years f to export their consignments to foreign countries which shows the speediness of speed Internationalization. 70 companies have taken 6 15 years for Internationalization ion. 6-15 process which is considered as medium speediness. And 43 companies have taken more than 15 years for their Internationalization process which is a very slow and sluggish in Internationalizing. Four companies have included in the study which are . foreign companies previously internationalized and having their own subsidiaries in India.
Table 8 - Average No. of export countries
S.No 1 2 3 4 No. of Countries 1 2-4 5-9 above 10 Total Companies 0 13 75 55 143 Percent 0 9.1 52.4 38.5 100.0

Fig. 1 Number of Countries Exported by companies

2-4 39% 5-9 above 10 9%

52%

From the above table 8 and Fig. the total number of countries in which the companies Fig.1, conducted foreign sales can be seen around 52% are exporting to 5-9 countries and 9 around 39% are exporting to more than 10 countries.

International Journal of Advanced Research in Management (IJARM), ISSN 0976 6324 (Print), ISSN 0976 6332 (Online), Volume 3, Issue 2, July-December (2012) Table 9 - Number of Buyers in the domestic Market and abroad
S. no 1 2 3 4 5 6 7 No. of buyers 1-4 6-10 11-15 16-20 21-25 26-30 >30 count 109 69 93 120 137 109 69 Home market 26 10 6 26 58 Foreign market 34 74 24 13 8 16 Total 143 143 143 143 143 143 143

(Count is a column where the data is not entered for the particular factor)

As visualized in table 9, the companies most often had over 30 customers in the home market is 58 and 16 firms are having more than 30 customers outside the country. Of the 143 companies 126 companies are having good domestic market. Hence the home market still seems to be of great importance for the companies in general. 74 companies are having export market of 6-10 countries and 16 companies are having good export market of selling products to more than 30 countries. 7.4 Managements Role Of International Experience The role played by the Entrepreneur or Management is crucial in the rapidness of internationalising. Several factors influence in taking decisions for entering foreign markets. Table 10- Managements Role in Internationalization Process
Factors has lived abroad has studied abroad has worked in another company in international assignments has worked in a foreign company having lot of international experience travel abroad once or twice a year managed a company in abroad for current company firm has foreign directors other experiences No one Count %
13 64 120 121 19 128 118 21 9.09 44.76 83.92 84.62 13.29 89.51 82.52 14.69

One of company Count %

106 69 19 11 49 9 25 4 74.13 48.25 13.29 7.69 34.27 6.29 17.48 2.80

Many Count %
24 10 4 11 75 6 118 16.78 6.99 2.80 7.69 52.45 4.20 82.52

From the above table10, it is observed that, 106 companies answered at least one of the person had lived abroad and 69 answered one of them had studied in foreign country and 75 answered that they travel abroad at least once or twice a year. Thus it shows that the management does not have much international exposure enabling to operate in foreign countries. On the other hand, one can assume that only one or a few need to have international experience in a company before entering international business. 7.5 Major Variables in the Internationalisation Process: The main idea behind this study, was to check out which variable from each Internationalization theories still fit into the SME internationalization process. The
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International Journal of Advanced Research in Management (IJARM), ISSN 0976 6324 (Print), ISSN 0976 6332 (Online), Volume 3, Issue 2, July-December (2012)

purpose was to understand which of the variable played the most influential role in the process and in what degree of Importance, although some variables can be applicable to more than one theory.
Table 11 - Major Variables in the Internationalisation Process
Mean Rank* Variable ID C2_1 C2_2 C2_3 C2_4 C2_5 C2_6 C2_7 C2_8 C2_9 C2_10 C2_11 Main variables in Internationalization process Mean SD Business network and relationship 4.59 0.663 Entrepreneurial activity 4.41 0.763 Resources of the company 4.32 0.623 Skills of the employees to operate internationally 4.55 0.553 Innovative behavior of firms 4.02 1.024 Standardization, Centralizations & marketing 4.73 0.506 Managers of the firm to have previous international experience 4.59 0.799 Experience from early inward international activities 4.41 0.799 Entrepreneurs motivation 4.15 0.695 Entrepreneurs risk taking ability 4.27 0.605 increased commitment will lead to increased investments. 4.73 0.605 (* Mean Rank extremely minor impact=4 and extremely major impact = 7) 6.84 5.78 5.17 6.45 4.90 7.24 6.84 5.93 4.55 4.95 7.37

From Table 11, it is deduced that, Increased commitments will lead to increased investments and vice versa is the most important variable to consider as Uppsala theory suggests. Next ranking is the standardization and centralization and marketing as the important activities . Followed by, Business network and the Entrepreneurs previous international experience will make the SME successful the in internationalization process.
Table 12 - Factors that affect the companys Decision in Internationalisation
Variable ID E3_1 E3_2 E3_3 E3_4 E3_5 E3_6 E3_7 E3_8 E3_9 E3_10 E3_11 E3_12 E3_13 E3_14 E3_15 Triggering Factors Mean SD Mean Rank *

Internationalization of customers Internationalization of competitors Success of competitors in foreign markets Managements interest in internationalization Managements experience in internationalization Competitive foreign sub contractors Inadequate demand in the foreign market Increasing competition in domestic market Foreign enquiry about the companys products / services Lack of sub contractors in the home market Market Entry Barriers The company never considered its home market is the only market. Export subsidies / subsidies for international operations from chamber of commerce/ other support organization. Lack of experiential knowle.dge in export markets Lack of export commitment & the focus on Domestic Market.
(*Mean Rank extremely minor impact=5 and extremely major impact = 10)

4.38 4.14 4.28 4.58 4.62 3.76 3.66 4.22 4.25 3.61 4.31 3.99 4.10 4.73 4.76

0.794 0.946 0.826 0.782 0.794 1.027 1.100 0.873 0.960 1.205 1.084 1.219 0.808 0.731 0.660

8.53 7.45 7.83 9.76 10.08 5.62 5.59 7.59 8.09 5.76 8.41 7.29 6.73 10.60 10.68

International Journal of Advanced Research in Management (IJARM), ISSN 0976 6324 (Print), ISSN 0976 6332 (Online), Volume 3, Issue 2, July-December (2012)

From the above table 12, it is well understood that, the factors No.15 & 14 are having the major impact to operate internationally among the selected SME is Lack of Export commitment and the focus is fully given on Domestic market. The next triggering factor is the managements experience in internationalization is also noticeably important. The owner or the Entrepreneur should have some international experience to operate internationally. Third is the managements interest in internationalization also makes the company operate internationally.

VIII. FINDINGS AND CONCLUSIONS From the empirical findings we can conclude that the company or the management has to take interest in internationalizing their SME. The study indicates that the initial export markets chosen by the company are closely situated both culturally and geographically. Most of the companies are exporting their products to Indian Subcontinents and well established companies are exporting their products to other major countries. A direct Export mode is preferred by the vast majority of the SMEs., because it is rather inexpensive operational mode that does not require any substantial commitments. In addition, based on the study, the important factors in internationalizing seem to be the managements interest in international activities as well as gaining knowledge about foreign markets as important factors. More studies are needed in order to discover the nature and extent of connection between import and export activities. For example, empirical information covering both qualitative and quantitative data from case studies and in-depth interviews would shed more light on this complex relationship and its underlying structure. Both in-depth and in process research methods are needed to ponder into the problems in internationalising. REFERENCES 1. Johansson.J&Vahlne, J E, 1977. The Internationalization Process of the firm-A model of Knowledge Development and Increasing foreign market commitments, Journal of International business studies, Vol.8, No.1, pp 23-32 2. Johansson J, &Vahlne, J E 1990. The mechanism of Internationalization , International marketing Review, Vol 7, No.4, pp 11-24 3. Isobel Dool& Robin Lowe 1999.Internatioanl marketing Strategies for Small and medium sized firms (SMEs) Second Edition, Thomson Business press Publications pp 221-265 4. Maria Forsman, Susanna Hinttu, SorenKock, Internationalization from SME Perspective, Work in progress paper, Department of management and Organization, Swedish school of Economics and Business 5. McDougall,PP., 1989. International Versus domestic Entrepreneurship: New venture strategic behavior and industry structure, Journal of Business venturing, Vol 4, pp 387400. 6. McDougall, PP &Oviatt, B M, 1997. Challenges for the Internatioanlization process theory: the case of Internatioanl new ventures, Management Internatioanl Review Special Issue 2, pp 85-99 7. MitjaRuzzier,Robert d Hisrich, BostjanAntoncic, SME Internationalization research:
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International Journal of Advanced Research in Management (IJARM), ISSN 0976 6324 (Print), ISSN 0976 6332 (Online), Volume 3, Issue 2, July-December (2012)

past, present and future, Journal of small business and enterprise development, Vol 13, No.4, 2006 pp 476-492 8. Stevenson, H H, &Jarillo J C, 1990a Paradigm of Entrepreneurship: Entrepreneurial Management, strategic Management Journal, Vol 11, Summer special issue. Pp17-27. 9. Welch,L ., &Luostarinen, R., 1988Internationalization Evolution of a concept , Journal of general management Vol 14, No.2 pp 34-55 10. Zahra, S A., &George,G, 2002. Internatioanl Entrepreneurship: The current status of the field and future research agenda, in Hitt, M A., Ireland, R D Camp, S M, & Sexton D L Eds., Strategic Entrepreneurship : Creatign a new mindset, pp 255-288 Oxford, UK. Black well publishers.

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