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Summary

 

1. Introduction.. 3
2. Business context and theoretical background. 4

2.1.         Characteristics of a high tech SME. 4

2.2.         Why internationalization?. 6

2.2.1.      Motives. 6

2.2.2.      Doubts. 7

2.3.         Different forms and models of SMEs internationalization. 7

III.     Methodology. 10

3.1.         Objectives of the study. 10

3.2.         Approach and tool. 10

3.2.1.      Literature review.. 11

3.2.2.      Qualitative survey. 11

1. Results obtained and analysis. 11

4.1.         Internal barriers highlighted by high tech SMEs. 12

4.2.         External barriers highlighted by high tech SMEs. 13

1. Recommendations and conclusion.. 19

 

 

 

 

1. Introduction

 

The high tech sector is particularly booming and high tech SMEs such as ICT and video games SMEs show double digits growth rates. Although this outstanding performance, high tech SMEs do not escape the need to remain competitive in a highly competitive environment. The internationalization allows the companies to scale up their activities, to benefit from potential markets, to get competitive production prices or cheaper workforce cost or to access to knowledge. High tech SMEs, however, encounter some difficulties in internationalizing in comparison to the larger companies which have sufficient technical, administrative and financial resources to overcome the challenges of the internationalization.

 

In order to help high tech SMEs to internationalize, the present project aims primarily at defining how and in what context high tech SMEs could be sustainably successful in locating business overseas. It discusses questions such as: what are the main motives and doubts for a company to internationalize? why some high tech SMEs are not internationalizing their activities? what are the pre-requisite conditions a high tech SME should fulfill before locating its business abroad?  what are the internal and external barriers high tech SMEs are facing while internationalizing? which of them constitute the most critical points to be addressed in priority?  how companies can tackle these internal and external bottlenecks?

 

The structure of the project is as follows:

• Section II discusses the characteristics of a high tech SME and the notion of internationalization in order to understand the subject under consideration,
• Section III presents the methodology adopted to collect information which will be the basis of analysis,
• Section IV reproduces the results obtained from the qualitative survey conducted among high-tech SMEs,
• In Section V, recommendations are formulated on: when and in what context a high tech SME could consider internationalizing its activity, the possible options of internationalization an high tech SME can choose from and the critical points a high SME should address while internationalizing.

 

1. Business context and theoretical background

 

In order to more understand the internationalisation of high tech SMEs, this chapter will give an overview of the characteristics of a high tech SME and will also investigate on the reasons which incite SMEs for internationalization or not, and on the different forms and models adopted for SMEs in order to act in a more global scale.

 

• Characteristics of a high tech SME

 

The existing literature does not provide a precise definition of a high tech SME. In a broad conceptual approach, a high tech SME is associated to terms such as: innovative SMEs, knowledge-based firms, R&D intensive companies and specific industry sub-groups which are IT companies or biotech firms.

 

A certain amount of research was carried out in the early 1990s in order to identify the characteristics of high tech SMEs, their strategies and their success factors. Litvak (1992) described the technology-based industry as a turbulent environment where:

• research and development plays a very important role and most of the time, a long lead time occurs between the basic research and the industrial application. Despite the technology-based industry sector is R&D intensive, high tech SMEs may be innovative without employing complex technology or conducting R&D,
• the technology is quickly obsolete due to the global competitive pressures reinforced by the new arriving products and innovation strategy undertaken by many high tech companies,
• the commercialization is often short-lived due to the introduction of new products and technological breakthroughs made by competitors,
• firms are vulnerable to changes in technology and/or buyer preferences (Meyer & Roberts, 1985)
• firms must be extremely vigilant in sensing and responding to changes as the technology innovation may reduce or eliminate the targeted market and the competitive advantage firms had ( Dertouzos, Lester & Solow, 1989).

 

Further a survey undertaken among almost 100 high tech companies in northwest England, Ackroyd (1995) classified high tech SMEs into three categories:

• the organization dealing in computer products and services. Most firms are grouped under this category,
• the highly specialized niche marketers,
• and the most technologically-oriented firms which are identified by Ackroyd as the « dynamic information technology company ».

 

Ackroyd identified distinctive characteristics for the third group consisting of[1]: a small multi-skilled staff, a small team to manage basic operations, lack of orthodox structure with indeterminate organizational boundaries, organizational strategy and designed based on staff competencies and interests, high sales and value-added, strong orientation towards customers, high adaptability and mobility, growth by replication rather than by increases, informal affiliations and alliances crucial (internal and external), a variety of legal forms, rarely owned by or affiliated with larger companies.

 

Covin, Prescott and Slevin (1190) argue high tech SMEs do have more organic structure. This is due to the fact that as per Hage (1986), this management style allows most effective adaptation: the structure is decentralized, informal, flexible and is characterized by an open communication. This management style responds to the needs of high SMEs to be continually engaged in thinking and action.

 

At the micro-level, these authors argue that high tech SME attach great importance  to innovative marketing, holding patents and copyrights, new product development, customer service and support. High SMEs need to hold patents and copyrights to reduce their vulnerability to competition and improve their market position. In order to succeed, high tech SMEs cannot just operate with a unique project or product, they are recommended to diversify their product range to face technological breakthroughs and ensure their long term run. As the technologies used are complex and sometimes completely new, innovative marketing and customer care are vital to facilitate the understanding and the handling of the project or the product by the customers.

 

• Why internationalization?

 

In economics, internationalization has been viewed as a process of increasing involvement of enterprises in international markets, although there is no agreed definition of internationalization or international entrepreneurship.[2] By internationalizing, firms ambition to: (i) improve their competitiveness by seizing existing market opportunities which allow them to diversify and growth their market size or to launch new products and services; (ii) maximize returns and minimize costs in purchasing, production, sales and distribution by for instance, delocalizing parts of the value chain.

 

• Motives

 

SMEs have various motives for internationalization and these motives include:

 

• the opportunity to access to know-how and technology

Internationalization helps SMEs to access to new technologies for them to improve their range of products or to explore niche markets and to gain competitiveness.  A SME can enter into a technical cooperation with another company which develops processing technology for manufacturing specific products. The later could transfer its technical protocol to the SME’s manufacturing process or advise the SME on adapting its plant.

 

• the possibility to access to new and larger markets for products and services

The majority of the SMEs acting on a global scale are motivated by the opportunity to access new markets. Larger markets refer to (i) the markets in which the company can sell its own products and services or to (ii) the markets where the company can purchase inputs, raw materials or components at lower prices.

 

• high production costs on the domestic market incites also SMEs to internationalize and find more competitive input prices abroad in order to gain bigger market shares on the domestic share itself.

 

• strict laws and regulations on the domestic market constitute barriers for SMEs development and investors are usually looking for a friendly environment to invest and to make profits.

 

• the possibility to access an additional production capacity

This motive mainly relates to the manufacturing companies which can increase their production capacity by subcontracting abroad part of their productivity.  By adopting this strategy, companies will also benefit cheaper production prices from the sub-suppliers due to the economy of scale.

 

• the possibility to access to labour and capital.

Some SMEs may obtain capital through license agreements or long term supply agreements.

 

• Doubts

 

Not all SMEs consider internationalization for various reasons such as:

• the SMEs guess the domestic market is largely sufficient for their actual and their future business,
• they do not even ambition to expand their activities abroad,
• they estimate the external and internal barriers too high and they are not ready to go through them.

 

• Different forms and models of SMEs internationalization

 

Internationalized SMEs are grouped into three main categories according to their internationalization profiles[3]:

• those importing from foreign suppliers,
• those exporting,
• and those who have established subsidiaries, branches or joint ventures abroad.

 

Internationalized SMEs can adopt one specific form or combine more than one form.

 

Although exporting remains the most traditional form adopted by SMEs to act in a global scale and to make the companies more present worldwide, the internalization has became a more complex activity as firms do not only focus on buying or selling raw materials, products or services, they are also involved in importing or accessing knowledge.

 

New international business strategies thus emerge in order to help SMEs to capture global markets: foreign partnership, foreign investment and cross border clustering. International SMEs collaborate more frequently in a formal or non-formal cooperation for a longer time period and cover a wider scope focused on more than one activity or project. The formal cooperation between SMEs generally comes to the form of alliances[4] and networks. Alliances between SMEs and larger enterprises or multinational enterprises become more and more important. Alliances and network primary relate to outsourcing as to face competition, companies need to be specialized and more focused on their core competencies. Larger companies then often outsource and subcontract their non core activities or part of some specialized activities to SMEs.  They can also relate to joint research and development, manufacturing, marketing, sales, labour recruitment, facilities location, or cooperation on distribution and after-sale services. SMEs can for instance sell their products abroad via a larger domestic trading company.

 

Instead of investing in subsidiary or branch abroad, some SMEs opt for other strategy such as providing license agreements to local distributors for them to sell the products under their label or under a different label.

 

Internationalization process

 

Internationalization results from a strategic choice decided by SMEs and it can be undertaken following progressive stages or as a unique natural process.

 

The stage of theory: The stage of theory is the prevailing model of the internationalisation process and it is based on the principles of moving step by step towards to the internationalisation by beginning from low commitment/risk to high commitment/risk. In one hand, this progressive strategy allows the SMEs to manage and minimise their risks and to spread out the necessary investment over a medium or long period. In the other hand, progressive steps help to build the capacity of SMEs to manage overseas market and to more understand the economic environment of the foreign countries in which they wish to be located.

 

The progressive stages include: (i) undertaking sporadic exports first, (ii) frequently export through independent representatives, (iii) establishing a subsidiary or branch abroad, (iv) implementing a production facilities abroad.

 

Regardless of the stages undertaken, progressive steps may also relate to the type of markets. A SME can begin internationalizing by exporting to markets within little geographic distance. Once it gains experience, it can address more distant and complex markets.

 

These are the usual progressive steps followed by SMEs when internationalizing but they are not mandatory and a SME can leap from a step to another one without following the sequence mentioned above.

 

Born global: Since their conception, some SMEs ambition to be internationalized in an early stage for two main reasons: (i) their activities are global by nature: companies whose main activities are based on exports are for instance categorized as born global companies, (ii) and/or they are exploiting a niche market or are very specialized in one specific area and the demand of the domestic market is insufficient for building a sound and sustainable business.

 

These born global SMEs usually export their products or services within the five first years from their conception.

 

Holistic approach: Depending on their activities, structures and strategic goals, SMEs may mix different models. Born global SMEs may internationalize by following some progressive steps but their progress will be more rapid.

 

It happens also in certain cases that the two models cannot be applied. It is for instance more appropriate for a SME dealing with specialized services such as consultancy firms or software developers to arrange an alliance or a joint venture within a foreign company representative instead of exporting directly their activities.

 

A SME more interested in accessing know-how, technology or labour will prefer to engage in networks or other forms of cooperation instead of implementing a subsidiary.

 

In conclusion of this first part, there is no pre-determined model of internationalization process to be adopted by a SME. Companies must adapt an internationalization strategy which fits with their activities, structure, functioning, strategic goals, their actual needs and the level of commitment/risk they are ready to assume.

 

• Methodology

 

In order to collect enough information to answer the problems of this project, a qualitative study was conducted and this section presents the methodology used to conduct the study.

 

• Objectives of the study

 

The project seeks to determine how and in what context high tech SMEs could be sustainably successful in locating business overseas.

 

It also seeks to address the following specific objectives:

• understand the main reasons why high tech SMEs are not internationalizing their activities,
• identify and analyze the internal and external barriers to the internationalization of high tech SMEs,
• formulate recommendations to be addressed for the management for the most critical points.

 

The assumption beyond this study is that high tech SMEs unprepared for internationalization cannot be sustainable within a dynamic environment.

 

• Approach and tool

 

 

To achieve the above objectives, the study involved a combination of both methods of data collection consisting of a literature review and a qualitative survey.

• Literature review

 

The literature search allows reviewing the existing documentation, study and previous existing research.

• Qualitative survey

 

The qualitative approach was chosen because it allows collecting qualitative and descriptive information. The cost of conducting such survey is relatively small. It also allows to conduct open discussions with the interviewees and to understand some points that were not addressed initially in the questionnaire sheet.

 

The qualitative survey was conducted through personal interviews with 10 high tech SMEs mainly involved in computer and related services.

 

Individual interviews with managers and officers within SMEs were conducted through questionnaire sheet attached as an appendix and lasted 30 minutes on average.

 

Target high tech SMEs were selected randomly. It was particularly difficult to get appointments with the managers as they were harnessed to their daily work. .

 

The method of content analysis was adopted to process the information collected during the qualitative survey.

 

1. Results obtained and analysis

 

This section reproduces the results obtained from the qualitative survey conducted among high-tech SMEs. The study highlights found that some high-tech SMEs do not even think to internationalize for the following reasons:

• the domestic market is more than enough for the company which is not interested in internationalizing,
• SMEs believe that the internal and external barriers to the internationalization are too great and they are difficult to overcome.

 

• Internal barriers highlighted by high tech SMEs

 

These barriers reflect the internal weaknesses of high tech SMEs in view of the internationalization. They enable to know if companies have sufficient strategic and operational competencies and enough financial resources.

 

1. Lack of internal expertise

 

The study found that the lack of internal skills is an obstacle to the internationalization of high tech SMEs:

 

• Most managers who have created or manage high-tech SMEs are highly skilled in a technical field, however, they lack experience in strategic management of a company to ensure that it can survive long term in a very dynamic and competitive business environment. This lack of skills and experience in strategic management does not encourage managers to internationalize their businesses. It is also reflected in the lack of strategic planning for internationalization.

 

Indeed, some high-tech SMEs positioned on niche markets decide to explore international markets since the domestic market is not enough for them, other SMEs made their first entry to the international market by responding to customers’ sporadic demand. The SMEs which succeed their first export operations choose to internationalize without taking the time to organize and plan their internationalization.

 

These shortcomings are compounded by the lack of time managers who do not have time to concentrate on both policy decisions and operational decisions.

 

• Internationalization also requires additional skills, which include among others mastery of foreign languages, thorough knowledge of market conditions and laws of foreign countries that represent potential opportunities for SMEs, understanding of cultural differences , good knowledge of import and export procedures and a good sense of negotiation.

 

1. High costs of internationalization

 

Additional administrative costs are generated by internationalization and these costs may include:

–     training costs of the employees undertaken in order to strengthen their internal competencies to satisfy the needs of internationalization and the costs of hiring experts. Although these costs are essential, they are heavier to bear for small and medium enterprises and the latter do not have well defined and well tested procedures for recruitment and selection, so SMEs have harder time recruiting and selecting experts matching with their actual needs.

–     cost of studies such as international market research,

–     costs occurred for identifying international partners,

–     costs for legal advice required while negotiating or contracting,

–     cost for documents translation,

–     cost for adapting products or services according to customer needs,

–     travel costs necessary while prospecting of markets or raw materials or components,

meeting suppliers or customers, negotiating and signing contracts,

• cost for establishing a subsidiary or branch,

 

• External barriers highlighted by high tech SMEs

 

External barriers are formed by elements that can threaten the success of internationalization and be beyond SMEs’ control in some cases.

1. Laws and regulations

 

Laws and regulations of foreign countries in which SMEs are looking to locate constitute high barriers to investment. Indeed, the high tech SMEs may need to:

 

–     deal with complicated procedures during the set-up of subsidiaries or branches. These procedures include the production of many documents, the payment of substantial fees for entry, a long waiting period before obtaining approval and the absence of clear and well defined procedures,

–   comply with technical standards or environmental and social safeguards required by the foreign country. Countries may also request SMEs to comply with marketing requirements such as packaging and labeling instructions for telecommunication equipments and computers for example,

–     address some gaps in national legislation on a specific high-tech sector. These limitations do not allow SMEs to operate in a secured business environment since the government can intervene at any time to change its regulations,

–     adapt with heavy administrative procedures for customs clearances at import or export,

–    comply with regulations on consumer protection,

–    face some forms of protectionism or preferences given to domestic suppliers.

 

These regulations reinforce in some cases the level of risk born by SMEs by locating abroad.

 

1. Lack of support and advice to investors

 

The absence or inadequacy of support and advice to investors may constitute an handicap for high tech SMEs wishing to set up abroad. This barrier, however, was not cited by the all the managers as several countries have implemented agencies in charge of informing, advising and assisting investors.

 

Some countries have developed policies and measures to encourage international SMEs to invest in their countries. Other countries have prioritized some areas, either because they are important sources of foreign currencies, or they are significant sources of employment for the local workforce, or they can provide added value to the natural resources of the country. This is the case, for example, of biotech companies which are encouraged to settle in foreign developing countries rich in medicinal plants.

 

The investment facilitation activities are conducted by agencies, chambers of commerce or trade ministries and these activities include among others:

–           Information activities carried out by a standard service, information may also be available on an Internet platform,

–           Promotional activities, which generally consist in organizing trade fairs, exhibitions and B2B workshops in order to match foreign investors to local businesses,

–           Financing activities which consist  of providing export credits, guarantees and insurance on the risks , financial aids or other support needed for internationalization, or preferential tax treatment . These funding can also cover the costs of feasibility studies, the acquisition costs of materials and equipment  based on leasing, or the costs of obtaining land or premises,

–           Personalized services provided to SMEs in terms of advice on exporting, on establishment subsidiary or branch, on matching investors with local potential suppliers , or on provision of legal advice.

 

Support activities available for SMEs vary from one country to another. Although a platform dedicated to support investors exists, information and studies related to a specific high-tech sector may be still insufficient. This gap does not allow SMEs to assess the potential market opportunities and they should then conduct an extensive and costly market research.

 

The managers of SMEs also stressed that the support activities provided by most of the countries are more focused on export and the establishment of subsidiaries and branches, they rarely cover collaboration and networking as well as the matching international investors and local businesses.

 

1. Limited access to capital

 

The limited access to capital is also a barrier to internationalization for high tech SMEs, especially for those undertaking important amount of research and development and those selling innovative materials and equipments.

 

New technologies generally require large investments, companies must have sufficient financial resources to meet orders and deal with operational and administrative costs of internationalization.

 

High-tech SMEs whose activities are focused on the services provided on Internet do not require as much funding as commercial or biotechnology.

 

The difficulty of accessing finance for high tech SMEs strongly oriented towards innovative technologies is mainly due to their high level of risk in terms of profitability.

 

Indeed, the financial system of banks comes to understand risks, it is more reluctant to face:

 

• the uncertainty posed by the introduction of new technologies on the market since it is not certain that the target audience will actually adopt them,
• the fact that capital of high tech SMEs are rather composed by ideas, technologies that are intangible results, or specialized technical skills which are more difficult to value in terms of investment in comparison to SMEs working in more common areas whose capital is composed by tangible assets,
• the difficulty to completely protect the new technology against copying and piracy, – -The long leadtime existing between the beginning of the research and commercialization of the product,
• the specificity of high-tech sector. Bank employees are struggling to assess the technical and financial feasibility of an innovative technology project as they do not have the skills to do so.

 

Besides the difficulty of accessing, high tech SMEs that are able to get loans are subject to high interest rates. Financing difficulties are felt more during the start-up companies and during the phase of technology commercialization.

 

1. Limited access to skilled labor

 

High tech SMEs employ mostly highly skilled technicians and a knowledgeable labor force for less technical tasks. Staffs of high tech SMEs need to be flexible and able to assume a variety of technical tasks, adapt to any technical projects prepared and issued by companies. SMEs mainly operate with permanent staff or temporary staff recruited on the basis of current projects or freelance consultants. SMEs can also relocate some technical work by entrusting them to experts outside the country.

 

At present, high tech SMEs encounter significant difficulties to access a skilled workforce.

 

Companies may consider training their staff to meet their business needs. Training may take some time and pending the completion of the training, trainees cannot be immediately operational, which create a shortfall in terms of productivity for SMEs.

 

The difficulty of access to a technically qualified workforce worsens progressively as high tech SMEs require more technical skills. One of the main motivations for companies to internationalize is the ability to access a skilled and cheaper workforce. It turns out that some high-tech SMEs have difficulties in finding technicians even in their own country of location. In France, businesses operating in the creation and animation of video games on Internet have such hard time finding enough graphic or web developer. Companies can face also greater difficulty in finding experienced technicians abroad.

 

Lack of skilled labor in high-tech sector is mainly due to:

• inadequate training lavished on the market. Indeed, the training does not meet the real needs of companies in the high tech sector in terms of qualification and quantities. The education system is not informed on trends and the changing needs of high-tech sector in terms of human resources,
• the education system and vocational training in the country is not flexible and cannot adapt quickly to meet the needs of businesses,
• young people are not aware of the importance of the high-tech sector needs in terms of jobs, the demand for training is not important enough to require training institutions to adapt their programs,
• lack of inhouse training conducted by the high-tech enterprises themselves.

 

1. Barriers to networking

 

The networking is a form of collaboration used by high-tech SMEs to access knowledge and technical capabilities of other companies of similar size or larger. A small business cannot master a technology solution in its entirety; the networking allows high-tech SMEs to:

• provide more integrated service to the international market,
• only focus and improve their core competencies,
• spread the high costs of research and development costs between the two companies and share the risk associated therewith,
• work closely with research institutes and benefit from their results,
• partner with other high-tech SMEs which can become suppliers of components or sophisticated technical services.

 

Some high-tech SMEs are reluctant to use the networking to internationalize because:

 

• SMEs are aware that partnership with large companies can be difficult to manage. Through networking, SMEs seek easier access to market and wish to establish a solid reputation; they want to achieve concrete results in short term. Large companies want to access new technologies and to remain competitive in research and development, they can afford to wait for long term results because of their significant financial resources. In order to provide effective results, networking requires much time and information exchange between the two parties to ensure that the objectives of each party are understood and balanced by each other.

 

• Some high-tech SMEs are afraid of not being able to efficiently secure their property rights and licenses by working with large companies. Indeed, SMEs must disseminate certain information with companies to which they are engaged in networking and they must ensure that certain information remain confidential.

 

1. Cultural and language differences

 

Difference of languages and cultural differences may also constitute barriers to internationalization. Cultural differences influence the way of discussing with the authorities, exchanging information with partners, communicating, negotiating, contracting with suppliers or service providers.

In conclusion, some high-tech SMEs feel they do not have sufficient internal competencies to internationalize: (i) managers have no experience in international affairs and strategic planning for the development of their businesses, (ii) managers and employees lack the knowledge necessary for internationalization such as foreign language skills or knowledge of foreign markets and legislation, (iii) financial resources needed to meet administrative costs of internationalization are too high.

 

External factors also discourage high-tech SMEs to internationalize or expand their international activities: (i) lack of knowledge of laws and regulations of foreign countries, (ii) lack of incentives for high tech SMEs, (iii) lack of access to financing, (iv) the difficulty of accessing a highly skilled workforce, (v) the desire to protect its intellectual property rights and (vi) differences language and culture.

 

1. Recommendations and conclusion

 

The high-tech SMEs which meet the prerequisites below may seriously consider the internationalization of their activities:

• they hold a competitive advantage or strong ownership: intangible assets related to businesses, innovative capacity , technological expertise, or highly trained staff …
• they have identified several location advantages after assessing the internal and external incentives and disincentives to the organization. These benefits may include a strong market potential, competitive production costs, the quality of infrastructure, an abundant and skilled workforce.

 

Importance of planning the internationalization

 

Most of high tech SMEs have made their first exports in response to unforeseen demands from some clients and have started to internationalize based on their first experience without a real strategy.

 

It is highly recommended for high tech SMEs to seriously prepare and plan for internationalization. These preparation and planning process include:

• carry out studies on the potential of foreign markets,
• undertake an analysis of internal and external environment of the company,
• Make a thorough study of the regulatory framework of countries with high growth potential by focusing a little more on the regulations governing the high tech sector, the protection of investments, tax systems,
• Conduct a competitive analysis and defining the market entry strategy,

 

Sometimes studies are available from the agencies responsible for promoting and facilitating investment of the countries surveyed or from chambers of commerce. Extensive studies carried out on a specific sector can also be purchased online. If the available information does not properly assess the potential of a defined market, the SMEs must appoint a staff member or expert consultant or consulting firm to conduct the necessary studies.

 

The results of these studies allow SMEs to:

• define the potential of a given market,
• determine the form of internationalization most appropriate for the company,
• assess whether the planned internationalization is cost-efficient and profitable,
• identify the different internal and external barriers that the company would have to overcome and to define how to work around or fix the various obstacles to internationalization,
• budget the necessary financial resources for internationalization,
• determine the human resources needs,
• define a clear and coherent strategy for internationalization,
• establish an action plan, set a timetable and define performance indicators,

 

Possible options of internationalization

 

The following table summarizes the possible options of internationalization for each category of high tech SMEs. Forms of internationalization are proposed taking into account the nature of the activities of high tech SMEs.

 

 

 

 

 

 

 

 

Category of the high tech SMEs	Proposed form of internationalization
1.    SMEs dealing in computer products and services	–          Exporting (to expand the company’s turnover), –          Importing (to get competitive prices for raw materials or components), –          Alliances (to access to know-how and technology) –          Subsidiaires or branches (to locate the production, to get close to the customers)
2. SMEs highly specialized in niche markets   3. Most technologically-oriented firm	–          Exporting (to access to large markets), –          Networking and alliances (to focus on core competencies and to access larger markets)

 

 

Forms of internationalization of each category of high-tech SMEs are not limited to the proposals listed in the table below. The most suitable form of internationalization for a given SME will be confirmed by the results of studies conducted during the preparation and planning for internationalization.

 

 

Critical points to be addressed by the high tech SMEs

 

These critical points refer particularly to the access of finance, the access of qualified and skilled labour force and the capacity building of the management.

 

Access to finance : Access to finance is a major barrier to the internationalization of high-tech SME, either during the startup phase or during the marketing phase. As mentioned in the second part, the banking system is particularly reluctant to lend to high-tech SMEs in view of the uncertainties and the high degree of risk that characterize this specific sector. However, managers have the opportunity to consider other alternatives to find financing. These alternatives include:

 

• venture capital in which investors consider the projects in depth, assess their feasibility with the help of experts, and decide to go ahead if they have a good feeling on their possible success. These investors fully participate in opportunities and risks of the high tech projects.  Some investors are not likely to finance high-tech SMEs during the start-up phase because of the low returns generated by these companies during this particular period. Other investors consider the amount of capital required by high tech SMEs during their start-up phase, too small for an investment. Investing small amount doesn’t really attract interests of some professional venture capital company.

 

• business angels which represent some wealthy individuals who invest their own fund in an enterprise, they usually have or had a substantial business and an entrepreneurial experience. As they are more involved in the management in certain cases, the high tech SMEs may associate funding from business angels with a loss of power and control over business. Identifying business angels is a time-consuming activity for the SMEs as these typical investors are not really listed in a directory or in a network available on the web. Lending capital to SMEs does not constitute a daily mission for these investors, unlike the banks or professional venture capital company. They choose to invest when they feel an opportunity and when the technical project raises their interests. Getting capital from business angels does not follow a standardised procedures or services in comparison to a bank loan or a venture capital company: it is less formalised.

 

• Apply for call of interests for financial aid launched by public or private institutions. These initiatives respond to the policies and measures undertaken by governments in supporting the promotion of investments including SMEs in some priority areas. Funding may cover the costs of company start-up, the costs related to the planification of the internationalization, the costs of different studies to be performed, costs of materials and equipment. Some institutions act as warrantees for the loans contracted by SMEs. Several financing alternatives are available to high tech SMEs which have little knowledge in identifying professional venture capital companies and business angels. SMEs can use the services of intermediaries such as consultants who have extensive knowledge and experience in these types of investors. SMEs are also invited to look for funding near the organizations which support the development of the high-tech sector, SMEs or private sector.

 

Access to skilled labour: Access to skilled labor is the main barrier to the internationalization of high tech SMEs. In order to satisfy their needs for highly qualified technicians, high tech SMEs can recruit outside their host country by using recruitment agencies, or posting ads on websites focused on technology or on recruitment sites to attract good candidates.

For offshore production, especially those related to data processing, high-tech SMEs may enter into collaborations with local companies or local educational institutions for implementing training programs focused on the needs of high tech SMEs. These types of collaboration allow SMEs to fulfill their human resource needs, provide adequate training which match the needs of the labor market and enable trainees to quickly access jobs. The training supported by the high-tech SMEs can also be done through student placements, apprenticeships, year-in-industry, school visits and others.

 

Organizing internal training also helps high-tech SMEs to strength the skills of their employees. High tech SMEs should also provide refresher training for employees who have worked for several years in the business since the technologies are evolving rapidly and new technologies also appear frequently.

 

Capacity building of the management: High tech SMEs operate in a highly dynamic environment compared to traditional SMEs: innovative technologies, high degree of risk, technology quickly obsolete, personalized customer demand.

 

Most managers of high tech SMEs are highly skilled at the technical level, they are excellent in designing and implementing technical projects. However, they do not have enough skills to turn these innovations and ideas in a successful business sustainable over time.

 

It is therefore vital that the strategic and operational management skills of managers are strengthened so that the company can evolve peacefully in a dynamic environment, the managers are able to manage the high level of risk and uncertainty of the high tech Sector and to ensure the sustainability of the company and its survival.

 

Managers should thus participate in training programs on specific Areas in order to strengthen their skills. These include: finding market information, market evaluation, launching new products, global marketing, human resource management in fast-growing sectors, recruitment, networking, customer-orientation working methods, understanding the evolution from technology to market, patent management, negociations or know-how transfer.

 

 

 

 

 

[1] Ackroyd, S., (1995), « On the Structure and Dynamics of Some Small UK-based Information Technology Firms », Journal of Management Studies, Vol. 32, No. 2,

[2] http://en.wikipedia.org/wiki/Internationalization

[3] As per the results from the ENSR Enterprise Survey of 2003

[4] Strategic alliances are co-operative agreements between independent firms based on business contracts to enhance the competitive strategies of the participating companies ( OECD working paper 2002/4)