Internationalisation of small and medium enterprises: mediating role of relationship quality

2017-01-31T04:18:27Z (GMT) by lsmail, Md Daud
This research examines the internationalisation behaviour of small and medium enterprises in an emerging economy. In particular, this study investigates how small businesses successfully venture into foreign markets despite their inherent lack of resources. The success of such ventures has been at the centre of investigation because cross border operations are incredibly complex and often characterised by high risks and uncertainty. To overcome these risks and uncertainty, firms need knowledge, particularly experiential knowledge of such markets. For small businesses, this is a challenge because acquiring such knowledge demands great resources. Previous studies suggest that small businesses use intangible resources and capabilities to overcome this shortage of financial and human resources. Existing studies also suggest that to operate in cross border markets small businesses require external support from foreign partners. In order to gain this, small businesses use the capabilities of building cross border relationships with foreign partners to achieve superior performance in foreign markets. While this notion has been discussed by scholars for almost a decade, this study addresses many important issues that have not hitherto been researched. This study extends the theoretical concepts relevant to the interface between knowledge and capabilities. Small businesses use relationship building capabilities to leverage foreign importers’ competencies in local markets to acquire knowledge. These capabilities are supported by two important factors, namely smallness and flexibility, which enable small businesses to react and interact with foreign partners in the most effective way. Although relationship building capabilities have been assumed to exist, they have not been extensively investigated, particularly in the case of small businesses. This study also goes a step further by investigating the components of relationship building capabilities: these consist of several intangible resources and capabilities. A literature search suggests that a firm’s resources and capabilities pertinent to cross border relationship building are market orientation, entrepreneurship orientation, learning orientation, human capital and relationship quality. In determining the relationship between these resources and capabilities, this study advances the notion that knowledge acquisition is achieved through a strong and close relationship with foreign partner. This form of relationship is called a quality relationship. The quality of the relationship facilitates an exchange of knowledge resources between partners. Hence, small business exporters use their resources and capabilities to build relationship quality with foreign importers which, in turn, relates to competitiveness, internationalisation and export performance. A conceptual model is established integrating two existing theories, the Uppsala model and the Resource-based view, to guide the theoretical underpinning of this study. The model distinguishes between a firm’s resources and capabilities as independent variables and internationalisation outcomes as dependent variables. The independent variables include market orientation, entrepreneurship orientation, learning orientation, human capital and psychic distance. Internationalisation outcomes consist of export performance, competitive advantage and internationalisation. The model also acknowledges the mediating function of relationship quality. Although a very similar model has previously been developed, some important elements of small businesses, such as entrepreneurial posture and the role of top managers, were ignored in the earlier model. Data was collected from Malaysian wholly-owned, small and medium businesses in Malaysia in the manufacturing sector to assess the model and test the hypotheses. A questionnaire developed for the study was chosen as a means of collecting data from a sample population of 853 firms recruited through industrial directories. A total of 228 small and medium businesses returned the questionnaire providing an approximately 30 per cent response rate. Data was first analysed using regression analysis through the statistical package SPSS 17. Regression analysis was used to measure the extent to which the independent variables predicted relationship quality and internationalisation outcomes. This method was also used to measure the moderating function of the moderator on the effect of the variables on relationship quality. Generally, the findings show mixed results where some hypotheses are supported while others are not. With regard to the moderating function, the data only support one effect: that is, the moderating role of communication on the influence of learning orientation on relationship quality. Structural equation modelling (SEM) was also used to examine complex interrelationships among variables in the study. The aim was to examine for direct, indirect, and total, effects of the various factors. SEM was performed using AMOS and the findings show that relationship quality and competitive advantage could be predicted through entrepreneurship orientation and learning orientation. Relationship quality was also found to affect competitive advantage and export performance. The relationship between competitive advantage and export performance was found to be positive and significant. However, no effect was found on the mediating role of relationship quality.