SMEs and international partner search

Globalization has necessitated the internationalization on the part of SMEs. SMEs suffer from a number of handicaps when they venture overseas: the liability of size and liability of newness to the foreign markets. International cooperation is a key means for their internationalization. This thesis reports research undertaken to examine a key problem small and medium-sized enterprises (SMEs) face when seeking international cooperation - the search for suitable partners. International partner search is an important area requiring attention because SMEs have in anecdotal accounts reported failures in international cooperation because of the difficulty in searching for partners who will perform their obligations under an international cooperative arrangement. While there has been growing interest in the internationalization of SMEs, attention has been placed on the selection of international partners and not on the search processes. The thesis employs the design science approach to develop a validated design solution that can be used by SMEs in their international partner search. The research contributes to the research literature in addressing the gap on the search processes employed by SMEs in Asia. The research employs methods that are used in quantitative and qualitative research with the aim of constructing a solution employing the design science approach. In contrast to the more usual management research, the objective of this approach is not to explain or explore phenomena. It goes beyond stating the implications of the research and contributes to a better understanding about what practical steps the SMEs searching for international partners, who are called focal firms in this thesis, can take to advance their enterprise. It involves validating the suggested solution to assess that the solution concept is feasible. The product of the research will be guidance notes for SMEs who have yet to embark on international cooperation. The thesis examines the search for partners in general in a wide variety of relationships and does not limit itself to certain types of relationships. The reason for adopting this definition lies in the research question. As the research is limiting itself to the search, the nature of the relationship only comes to importance subsequently when the search has produced prospective partners that the focal firms select and then enter into negotiations with. The relationships are formed at a subsequent phase. Focal firms are by nature of their size and resources, and opportunistic in behavior. When searching overseas, they are more likely to be search for all types for relationships. Hence, the thesis refers to international cooperative arrangements in general. A total of four studies and three validation studies were conducted in the thesis research. The research began with a review of the relevant literature to propose steps that the Singapore SMEs should take to reduce their difficulties in the international partner search process. The first two studies, the Network Study and the Cultural Cousins study were prompted by the prior literature suggested that all the focal firms need to do in Asia is to search within and tie up with firms in their business networks; and that since most of Asian SMEs come from either the Chinese or Indian diasporas, establishing working international cooperative arrangements is merely a matter of picking partners of the same ethnicity. In the Network Study we found that family and informal social networks, while useful had limited application to SMEs for their international ventures. The Cultural Cousins Study revealed that picking cultural cousins for joint ventures did not reduce the conflicts as these existing between parents who were both of Chinese stock albeit from different countries. Further, this approach did not eliminate the need for the focal firms to search for partners they can trust and who will be committed. Hence, there is a need for the other studies conducted in this research to gather additional inputs for the design of the solution concept. The research embarked on examining the factors considered important by focal firms in their search. The Search Factors Study involved the interviews of thirty-three SMEs which were coded. These "search" factors suggested the importance of information gathering and information processing during the international partner search. In addition, the Search Process Study was conducted to build on the Search Factors Study in eliciting from the research subjects details of the search process they would recommend to other SMEs. The research interviewed five SME owners to develop propositions of the steps taken in their search. With the inputs from these four studies, the research then develops the solution comprising design propositions in the form of guidance notes that Singapore SMEs should employ in the search for international partners. At this stage the research enters the creative phase that employs a reasoning process under the CIMO logic. The research problem is a problem in context (C): how should focal firms conduct a successful international partner search. The solution concept involves interventions (I). The intervention in this thesis is the provision of the guidance notes, which can be adopted and applied by focal firms. Activities are the mechanisms by which the interventions take effect (M). Finally, the solution concept when applied should give rise to a satisfactory outcome (O). Hence, the outcome mentioned earlier that the research would lead to a more effective international partner search; i.e. a faster, more successful search that facilitates the selection and development of successful cooperation. In designing the solution concept, it was necessary to frame the concept in a form that can be utilized by focal firms. It was decided to depict the solution concept as guidance notes offering advice to the focal firms who could use it to gain their actions or actions of their staff engaging in search processes. For the purposes of the design, the solution concept adopted a linear flow to the steps when in reality the steps may be undertaken by the focal firms simultaneously and often in a nonlinear fashion contingent upon the circumstances encountered during the search. As with all designs, there is a need to verify if the solution concept developed from the inputs, was capable of working. There is a need to examine the feasibility of the solution concept. In most designs, the designs are subject to validation. In some instances, the designs are field tested. In this research, it was decided for reasons of resources, time and practicality, that the solution be subject to validation. The solution concept and the design propositions were validated with SMEs in general at a public seminar attended by twenty-seven focal firms, a panel of five nascent focal firms (SMEs yet to embark on international cooperation) and with a final panel of experienced focal firms. The choice of the panels is extremely important as the final panel of experts determines the applicability of the guidance notes. The five respondents have a vast experience with international cooperation and are from diverse industries. All three validation panels found the guidance notes helpful. The final validation panel provided additional insights that were incorporated in the revised solution concept. The finalized guidance notes will enable focal firms to improve their search processes; it will help nascent focal firms who are uninitiated get started on their searches. As a generic template, the guidance notes need to be augmented by additional modifications where there may be special industry conditions. The research is not without its limitations. Although it is envisaged to have greater application, this research has been conducted in Asia and more specifically from the perspective of Singapore focal firms searching for partners in the region. Through the course of research, a number of avenues for future research were identified. Through the development of the design, the research suggests that focal firms need to develop collaborative competence. Collaborative competence comprises partner search capability, information gathering and processing skills and social capital. Drawing from the comments of the experts (the focal firms in the various studies), the research suggests that focal firms seeking international partners need to develop the capability to search for partners which includes committing budgets for activities that enable the search, developing search agenda and strategies, and develop collaborative competence such as at trade exhibitions. Possessing this competence, the focal firms will, for example, not simply be at a booth in the exhibition extolling their products or services but would engage in search activities, gather appropriate information and processing verbal and non-verbal cues. Adopting the guidance notes developed from this thesis will enable SMEs to develop this competence.