Assignment: Internationalization Strategy of a Scottish Technology-Based SME

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Internationalization Strategy of a Scottish Technology-Based SME

Introduction
The company is a medium-sized, high-tech, surgical instrument manufacturer based in Scotland that has been in operation for about eighteen months. The UK market has only a small demand for it's products and so it must expand.

Route of International Expansion
There are different factors to consider when deciding the best way in which a firm can undertake international expansion. One of the most important concerns the issue of 'psychic distance'. Psychic distance refers to the many factors that can interfere with the flow of information between the firm and its market. Typically, the greater the psychic distance, the more negative are the interfering factors. Some examples of factors that create psychic distance are language, national culture, political systems and business practices in the foreign market. Therefore, it is potentially easier for some firms to sell their product or service in countries that share many similar traits. An example of this would include businesses in the USA preferring to sell initially in the UK market, as opposed to the Mexican market. The reason for this would be the greater similarity in culture, language and political systems. A firm undertaking an internationalisation strategy for the first time could enter closer markets and use it as a learning experience before trying to enter markets that are psychologically more distant (Paliwoda and Thomas 1998, Czinkota and Ronkainen 2001).

With the element of psychic distance in mind, there are two main routes through which a firm may enter new markets. The first is the process of incremental expansion. Incremental expansion occurs after a firm has developed itself sufficiently in the domestic market and then makes commitments in a foreign market. Initially, the resource commitment is low, but increases gradually as more experiential knowledge is gained about the new market. This is thought to reduce market uncertainty (Johnson & Vahlne 1990). Creating networks within the new market is also very important in incremental expansion, thereby increasing the knowledge base and help the company can call upon. The type of industries where incremental expansion is observed is typically in consumer goods, such as clothing and food.

However, it has been recognised that there is another potential route for an SME to expand into a foreign market. It is possible for an SME to begin a process of internationalisation almost immediately from inception (Oviatt & McDougall 1994). In this situation, there is no incremental accumulation of knowledge about the foreign market and no gradual commitment of increased resources. In this form of non-incremental expansion, the firm starts selling its product in the foreign market almost as soon as the company is formed. The main driver for this is when the product is highly innovative or of complex technology and the domestic market is not big enough to support sales. Also, the company may wish to take immediate advantage of the product and sell in as many markets as possible, particularly if the technology will be easy to replicate (Oviatt and McDougall 1994). Again, the formation of networks in the foreign market is extremely important. In a recent qualitative investigation of the overseas expansion of technologically-driven SME's, Crick and Jones (1999) found that low psychic distance was not an important factor in entering foreign markets for these types of firm. Indeed, of more importance were global trends in technology markets and the ability to create networks.

For these reasons, the best form of international expansion for this company would be non-incremental. In the domestic market, demand for this niche product is small and must be exploited abroad to maximise revenues. As described above, this is a typical situation for a highly innovative, technological product. Again, psychic distance should not be an issue because factors like cultural differences would not apply to this product.

Markets Considered for International Expansion
It has been outlined that the route for international expansion in this case will be via non-incremental growth. We will now look at the market and country(ies) in which to expand.

The problem that presents itself is that it is not often feasible for SMEs to perform an in-depth evaluation of all overseas markets when looking to expand. We will assume this to be the case in this instance. Therefore, a logical framework ...