The purpose of this study is to study how two small and medium sized Swedish apparel firms internationalize their business activities.The international business activities are more frequent now than ever because cross border trade barriers are much less today.
The companies internationalize their business operations for several reasons. High saturation in the local market, cheap supply line, hunting for resources and potential opportunities in the international market are the driving factors for internationalization. The small and medium sized enterprises (SMEs) have no exception from such motives.
Generally (SMEs) have fewer resources than big multinationals therefore internationalization is more difficult and challenging for (SMEs). The existing internationalization theories highlight several ways for internationalization. The internationalization process model depicts that companies extend their business activities from less to far psychic distance countries and gradually increase their commitment in the international market based on experiential knowledge i.e. knowledge learned by doing.
The revised model argued that companies involve in internationalization by utilizing domestic or international network. The psychic distance concept argued that companies face two types psychic distance i.e. inter – country and inter – firm psychic distance.
We developed our interaction process model for internationalization. According to the interaction process model when firms start interaction within network these have higher psychic distance level and lower trust and commitment because firms initially interact occasionally.
With the passage of time as the interaction of firms within network gains some pace the psychic distance level started to reduce and trust and commitment builds upward. Finally a stag arrives when psychic distance level reached at least stage and inversely trust and commitment at higher level and this result into international opportunity.
Thus firms by hunting international opportunity gets involve in internationalization. Inversely, international opportunity can also be developed at initial or middle stage and interaction process start at later stages. But in such situation psychic distance level is comparatively high and trust and commitment will be low because there is no or lesser interaction among firms. The internationalization in such a way will be more risky.
Source: Uppsala University
Author: Bhatti, Shakeel Ahmed | Ul Abideen, Zain | Ziko, Salah Udin