A Proposed Model for the External Factors and the Decision Maker Characteristics that Influence the Internationalization Decision and its Effect on the Small and Medium Enterprises Performance An Empirical Study on the Information Technology Sector

Abstract

An organization is an integral part of its surrounding environment. Organizations are affected with new changes in the surrounding environment as technological evolution represented in the internet, its related technologies, easiness of transportation and logistics breakthrough, tremendous changes of taste and mobility of resources all of these changes led to the concept of globalization. A global firm is one that by operating in more than one country gains marketing, production, R & D and financial advantage that is not available to purely domestic competitors. Major decisions in international marketing range from detecting the global marketing environment, deciding whether to go international, deciding which market to enter and how to enter the market, deciding on the global marketing program and finally deciding on the global marketing organization. (Kotler 2007). As global competition increases as there is an increased attention to innovation. This places a greater compulsion upon large businesses to develop stronger linkages with innovative SMEs, small and medium enterprises. Conventional companies with traditional local focus (often family owned) and more innovative companies (often professional service groups) are the main two forms of ownership in small and medium enterprises. Conventional SMEs have strong local demand & see themselves as meeting primarily local needs. Innovative SMEs tend to be more global focusing upon narrow product/service segments within this context. SMEs usually seek internationalization to overcome competition from other more international firms, customer requirements, large firm requirements, alliance in a joint venture, and for international conventions and standards. The role of SMEs in international market vary in the supply chain from domestic supplier of input to products, exporter for a specialized niche products, importer/distributor of goods from foreign SMEs and finally providers of support services to international trade transactions (inland transport, freight forwarding). (Turner and Johnson, 2003). SMEs in general tend to face three sets of competitive challenges; size-related constraints, market failures and policy biases. Where scale economies are inherent in any of the stages in the value chain, small size imposes costs on SMEs. Small size also penalizes the enterprise in high-risk activities, where technology is exceptionally fast-moving and based on sizeable R&D investments, or where investments have to aim at the global market from the start. Also, the certification of product and process standards has proven to be prohibitively expensive for smaller firms, thus making their integration in value chains more difficult to implement. Furthermore, the segmentation of factor markets places SMEs at a disadvantage with regards to access to input, credit, labor, and information and technology markets. The economic reason for such market failures is that providers of these factors may find it easier and more economic to deal with a few large firms rather than with a dispersed multitude of SMEs. In the case of developing countries the above problem is compounded by the ill positioning of SMEs to deal with technical and technological change. In addition, it is well known how many public policies, even some of those intending to favor SMEs, tend to place small enterprises at a disadvantage. These may include import and export policies, taxes and their administration, as well as several other aspects of the legal and regulatory framework that disproportionately increase the transaction cost for SMEs. To date, SMEs contribute some 25-35 percent of world manufacturing exports and account for a small share of direct investment. As of the Egyptian economy, small and medium enterprises constitute more than 90% of the Egyptian economy, moreover they do employ 75% of the workforce, in addition, such businesses as one of the techniques used by the government to overcome unemployment. As a result, this paper is dedicated to study the SMEs internationalization & what is the factors affecting their internationalization decision, as the modes of entering international markets & how does it affect the performance of SMEs. Research Problem: Internationalization in software industry is a critical step for surviving in the local and international market. Most of the software companies rely on international partner as a provider for the service from which they can customize their service to domestic clients. Other software companies act as a partner in international outsourcing process. They can be part of the software formation process, where they sell the international partner part of a software model or to a subcontractor. They are part of international outsourcing arrangements. The choice of companies from SMEs in Egypt and from other developing nations usually depend on the Owners competencies as well as the location of outsourcing conditions. Based on the presented problem, the following are some questions the researcher will attempt to provide answers for: