The Creation of International Business Relationships : Experience and Performance in the Internationalization Process of SMEs

Abstract: The present study examines the causal effect of experience on the performance of inter-national business relationships for small and medium-sized business firms. A case study of ten market entry processes in ten Swedish SMEs shows that both experienced and inexperienced firms can succeed in creating a new international business relationship. Out of the ten market entry processes seven failed and three succeeded. Experienced firms that fail have the capacity to learn from that failure, while inexperienced firms only learn that international business is difficult. Experience is contained as collective memory accessible for the actors involved in the internationalization process. The collective memory consists of routines, beliefs, artifacts and structures. All changes in the collective memory are the result of individual and group activity. Most changes are of an incremental nature, but once in a while more radical changes of the collective memory occur. The competence of the firm is dependent on whether the relevant knowledge is contained in the collective memory and the firm's capacity to use and change the collective memory. A LISREL analysis based on a survey of 293 SMEs in Sweden and New Zealand show that both general competence and internationalization competence leads to better performance in the internationalization process. International business competence was hypothesized to be the result of international business experience and context experience, but only international business experience has a significant impact on competence. Context experience is dependent upon the cultural distance to the target market. In culturally close markets actors tend to overestimate their competence and thus encounter more trouble than anticipated.

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