When size does matter: trends of SMEs internationalization strategies in Chinese economy

The strategies of internationalization have been one of hottest topics in managerial literature in the last decade. Interestingly to notice how deep and unexpected changes have challenged the mainstream of international management theories. Recent studies shed light on learning and unlearning of internationalization practices; a research effort to figure out the continuous shift of strategic priorities which shape the companies’ strategic landscape. This paper illustrates a framework and some preliminary results aim to comprehend how and why MMNEs (Medium-size Multinational Entreprise) internationalization strategies deviate from the more established strategies of multinational and global companies (MNC). The differences concern both the modes and the actions (how) and the strategic drivers, such as resource availability and exploitation. In the international competitive arena size matters because it forces the innovation process of governance structure and forms. Evidences from the field compel SMEs to explore and implement new governance forms. The mere imitation of international modes from MNC is not feasible and sustainable. We study a sample of Italian SMEs, analyzing the strategy choice and the governance models adopted in China businesses, and the relationship between the headquarters and the local branches or firms. The qualitative analysis complies with the research requirement to collect evidences on a precise point in time and over a more extended period of time (time of entry in China). Qualitative analysis highlights both the feasibility and sustainability of governance models (criteria and components) and forms (model execution and implementation). This paper investigates the specificities of SMEs. Some of them are driven to search for innovative governance mechanisms and forms because of the weakness due to the size. But size, in term of resources, is not sufficient to explain the success or failure of internationalization objectives, in fact SMEs are required to be more innovative also on the institutional arrangement and governance forms because of factors, which affect the scope of their strategic landscape. The adaptation process and, in some cases, the innovative governance forms analyzed in our sample of cases (described in the paper) are strongly affected by the following factors: first, the size does not fit the potential or actual dimension of market (size factor); Second, increasing difficulties to access to the countries’ institutional externalities and strong reliance on the efficiency of markets in order to purchase product and services which they can not internalize (make or buy factor);. Third, negative effects because of 'nocritical mass', which prevents to reach arrangements with local and national government (government and local shareholders factor); Fourth, being part of the supply chain of larger firms (MNC) is a common entry mode in Chinese market; though many SMEs are suppliers of MNC and face difficulties to decrease dependence and to implement their autonomous strategies (supplier and value chain positioning factor); Last factor refers to the lack of resources (human, market, relational and financial assets) which drive SMEs to adopt lean organizational structures and to search for innovative governance models (resources based factors). Our results show that SMEs are more prone to differentiate the models of internationalization matching the requirements coming from different markets. We observe in MMNEs a strong emphasis on develop new governance models. And the varieties of growth strategies through single partnerships or a network of partnerships validates this path of adaptation/innovation. Our study explains these differences as an evolutionary path. It allows us to interpret the internationalization moves and actions along with two tiers issues: first, “onetime” approach to the emerging economies and innovative actions in designing and implementing governance mechanisms; Second, a longitudinal (over a certain period) set of adjustments to adapt the governance mechanisms. This paper contributes to the international management studies with the following results: observations of the managerial paradoxes of SMEs in large markets; evidences shedding light of the interplay between macroeconomic and industrial policies and the single firm’s strategies; signs of the role of SME to the economic development and growth and how the size of companies may explain and contribute to the competitiveness in various industries; proofs of how SMEs drive and promote innovation of governance models. Our results provide a framework and preliminary evidences which support some of the forecasts of “size paradigm” (p.e. the size of local market correlated to firms’ size).