This section presents the barriers to the internationalization of SMEs identified in empirical studies. In a study undertaken by the OECD (Fliess, 2007) about the impediments to the internationalization of SMEs, in which firms from 47 economies and policy makers from 38 countries participated, the ten top barriers or impediments identified were:
2) Identifying foreign business opportunities (information barrier); 3) Limited information to locate/analyse markets (information barrier); 4) Inability to contact potential overseas customers (information barrier); 5) Lack of managerial time to deal with internationalization (internal barrier); 6) Inadequate quantity of and/or untrained personnel for internationalization (internal
barrier);
7) Difficulty in matching competitors’ prices (internal barrier); 8) Lack of home government assistance/incentives (external barrier); 9) Excessive transportation/insurance costs (external barrier).
Of the barriers above, financial problems (Acs et al, 1997; Fliess, 2007; Leonidou, 2004), imperfect information50 (Acs et al, 1997; Alexander and Warwick, 2007; Fliess, 2007; Leonidou, 2004) and price competitiveness (Fliess, 2007; Leonidou, 2004) are the barriers to trade that are more frequently highlighted in the empirical studies about the internationalization of SMEs. These represent deficiencies of resources and pave the way for more straightforward government intervention.
The empirical evidence also shows that the problems affecting the internationalization of firms from developed countries differ from the problems affecting firms from developing countries (Nakata and Sivakumar, 1997; Neupert et al, 2006). For example, when Neupert et al (2006) compared the export challenges faced by SMEs from developed countries and SMEs from transitional and developing economies, they found that the challenges/problems faced by the former were of external origin and were related to country differences such as rules and regulations, socio-cultural and procedural differences and logistics. On the contrary, the problems related to exporting SMEs from
developing and transitional economies were of internal origin, related to their poor
product quality and their products’ failure to satisfy the specifications required in the targeted market. This amounts to a lack of interactive capabilities abroad.
50 Imperfect information refers to entrant firms’ disadvantages due to poor information about labour, raw materials or output market conditions, lack of contacts, etc. (Acs et al, 1997).
The OECD (2007a) recognizes other microeconomic factors (internal barriers) hindering the internationalization of SMEs from developing countries, including low productivity, low levels of investment, obsolete technologies, low levels of labour and managerial capabilities, and financial problems. In addition, the Economic Commission for Latin America (ECLAC) highlights that among the most pervasive problems faced by Latin American SMEs are their size and their lack of knowledge about operating in foreign markets (Cruz et al, 2004b). Furthermore, Nakata and Sivakumar (1997) point out that many firms from emerging markets utilize few process and/or organizational innovations; they tend to use rudimentary and inexpensive equipment and rely on a large amount of labour to manufacture goods due to their limited capital. Altogether they see firms (specifically SMEs) from emerging countries as less competitive, as a result of not possessing organizational innovations or trained staff, and suffering from low-grade inputs, antiquated production methods and equipment, and poor managerial and human capital skills. Moreover, Aulakh et al (2000) agree that most firms from emerging economies in Latin America (Brazil, Chile and Mexico) lack branding (or at least global branding) and experience regarding foreign markets.
It is worth noting that from Milesi et al (2007) it can be inferred that internal factors (micro factors such as organizational, managerial and commercial capabilities, technological competencies, technological training, firm size and participation in promotional activities in foreign markets) have a stronger impact than external factors (macro factors such as the exchange rate, tax regime, economic and political instability and access to credit51) on the internationalization of SMEs from developing countries in Latin America (Argentina, Colombia and Chile). In contrast, Ruiz-Garcia (2009) found that external factors, such as non-tariff barriers, financial market imperfections, differences among the countries and fierce competition, have a pervasive impact on the internationalization of SMEs from developing countries (Mexico) in developed markets (the EU). As can be seen, there is no agreement about the magnitude of the impact of
51 Although the firms included in that study frequently mention domestic macroeconomic factors, such as the exchange rate, tax regime, economic and political instability and access to credit, as obstacles to the SMEs’ internationalization, those factors are statistically insignificant.
external barriers on the internationalization of SMEs from developing countries from Latin America.
In relation to the impact of government barriers on the internationalization of SMEs, there are two points of view. On one hand, there are some authors (Acs et al, 1997; Alexander and Warwick, 2007; Leonidou, 2004) who consider governmental barriers to be the highest and most economically damaging entry barriers for SMEs. This is because they increase the costs of operating abroad, and as SMEs lack resources, they experience many difficulties in overcoming those barriers (Acs et al, 1997; Leonidou, 2004). On the other hand, the OECD considers government barriers as doing little to restrict SMEs’ access to international markets (Fliess, 2007). Such governmental barriers as i) tariff and non-tariff barriers or ii) regulations (standards, regulatory requirements and procedures) were thereby considered as having a low impact on the internationalization of SMEs from developing countries even though they were scored higher by the more experienced firms with international operations included in the study.
As shown, a consensus exists among various authors (Acs et al, 1997; Alexander and Warwick, 2007; Fliess, 2007; Leonidou, 2004; Llisterri and Angelelli, 2002; OECD, 2007b) about the existence of government and policy barriers in domestic and foreign markets, which may affect the internationalization of SMEs. Nonetheless, there is no consensus on the magnitude of their impact. Through the literature review, no clear consensus was found about which barriers (internal or external) have the strongest impact on the internationalization of LMT-SMEs from developing countries in geographically
distant developed countries. Thus, this research aims to shed light on the internal and
external barriers affecting the entrance and performance of the Mexican LMT-SMEs serviced by BANCOMEXT in the EU and their impact.
To identify other issues that may affect the internationalization of LMT-SMEs in distant and developed countries, the next section presents empirical evidence from the business perspective of the effect of the lack of knowledge and the distance on SMEs’ internationalization.
3.4 The Business Perspective of the Impact of Knowledge and Distance on Firms’