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The effect of internal capabilities and external environment on small- and medium-sized enterprises’ international performance and the role of the foreign market scope: The case of the Malaysian halal food industry

Der Effekt von internen Kompetenzen und dem externen Umfeld auf den internationalen Unternehmenserfolg von KMU und die Moderator-Beziehung der geografische Reichweite: der Fall der Malaysischen Halal-Lebensmittelindustrie

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Abstract

This study investigates the internal capabilities, the external environment, and the moderating effect of geographical scope (international or global geographical presence) on the international performance of small- and medium-sized enterprises in the Malaysian halal food industry. Although the majority of research on SME internationalization concerns developed countries and knowledge-intensive industries, this study focuses on an emerging global industry from the perspective of a developing country. Furthermore, most of the literature on international entrepreneurship neglects the role of geographical scope as a moderator: current findings are still inconclusive with regard to the factors that affect performance on various levels of foreign market presence. The findings of our holistic study, in which we use several complementary theories as a backdrop, reveal the need to investigate internal and external factors in parallel with geographical scope to enhance understanding of their effect on the international performance of SMEs.

Zusammenfassung

Diese Studie untersucht die internen Kompetenzen, das externe Umfeld und die Moderator-Beziehung der geografische Reichweite (internationale oder globale geografische Präsenz) auf den internationalen Unternehmenserfolg von kleinen und mittleren Unternehmen (KMU) in der malaysischen Halal Lebensmittelindustrie. Nachdem sich der Grossteil der empirischen Forschung bezüglich der Internationalisierung von KMU auf entwickelte Länder und wissensbasierte Branchen beschränkt, fokussiert diese Studie auf ein Entwicklungsland und einen darin befindlichen aufstrebenden industriellen Sektor. Weiters mangelt es in einem Gutteil der internationalen Entrepreneurshipliteratur an der Berücksichtigung von geografischer Reichweite: Gegenwärtige Erkenntnisse sind daher noch weitgehend unschlüssig in Bezug auf die Frage welche Faktoren den Unternehmenserfolg bei variierender Marktpräsenz beeinflussen. Diese Studie ist holistisch und baut auf einer Reihe von theoretischen Grundlagen auf. Wir stellen fest dass es wichtig ist, interne und externe Faktoren parallel zu geografischer Reichweite untersuchen, um das Verständnis ihrer Auswirkungen auf der internationale Leistung der KMU zu verbessern.

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Conflict of interest

The authors declare that they have no competing interests.

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Authors and Affiliations

  1. Department of Management and Marketing, Faculty of Economy and Management, Universiti Putra Malaysia, Serdang, 43400, Selangor, Malaysia

    Noor Azlin Ismail

  2. School of Business and Management, Lappeenranta University of Technology, P.O. Box 20, 53851, Lappeenranta, Finland

    Olli Kuivalainen

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  1. Noor Azlin Ismail
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  2. Olli Kuivalainen
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Correspondence to Noor Azlin Ismail.

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Summary highlights

Contributions: There are three main contributions of this study. First, this study integrates several theories to analyze the effect of internal and external factors on the international performance of SMEs. Second, by using geographical scope (number of regions) as a moderator, the study enhances our understanding of the effects of these factors between international and global SMEs. Third, by studying SMEs in the Malaysian halal food industry, the contextual knowledge of a developing country and global industry is being provided.

Research Questions/Purpose: How does geographical scope affect the relationship between internal and external factors as determinants of international performance in SMEs? We suggest that factors affecting SMEs’ international performance are different depending on the level of geographical scope.

Results/Findings: Testing a research model through a multiple hierarchical regression analysis using data from 174 SMEs in the halal food manufacturing sector allowed us to explain the combined effect of internal capabilities, external environment, and geographical scope on international performance of these firms.

Limitations: We focus on a single industry in a single country, i.e., Malaysian halal food industry. The methodology has also its limitations as it is a cross-sectional study and the data were collected from single informants.

Theoretical Implications and Recommendations: The study confirms that determining the extent of international diversification, in other words the scope of the targeted foreign market, is an important strategic decision which has performance consequences as the firms operating in a wider market area performed better in our context. Furthermore, we contribute by integrating existing “competing theories” as complementary views concerning the internal and external factors on SMEs’ internationalization process (international versus global) and performance. The strongest explanatory variables turned out to be “foreign experimental knowledge” and “the globalization phenomenon,” which confirmed that the Stage Theory should be used together with other complementary theories or frameworks in IE research. Finally, this study extended certain constructs related to the RBV and the institutional-based view by introducing the concept of “halal reputation” (which in more general terms relates to the country-level industry brand) as an additional construct referring to the internal capability under RBV for SMEs operating in the halal food industry.

Practical Implications and Recommendations: SMEs are recommended to examine their level of internal capabilities before they make the decision either to become international or global players. SMEs operating in a narrower geographical realm or international scope should rely more heavily on the tacit knowledge of the founder/manager capabilities such as foreign experiential knowledge, long-term exposure to a foreign business environment, a global mind-set, and networking skills. Therefore, experiential knowledge and learning constitute a critical asset for international firms.

In contrast, SMEs operating in a wider scope realm or global scope should seek competitive advantage based on distinct, heterogeneous resources, i.e., capabilities, in the form of tacit knowledge that is difficult to replicate. Here, the key resources or capabilities can be related to foreign experiential knowledge and the reputation of Malaysian halal certification, which represents a country brand related to halal processing methods.

Appendices

Appendix 1

Table 3 The final items for the scale measurements
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Appendix 2

Table 4 Correlation matrix for international performance, SMEs’ specific internal capabilities, and the external environment (N = 174)
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Ismail, N.A., Kuivalainen, O. The effect of internal capabilities and external environment on small- and medium-sized enterprises’ international performance and the role of the foreign market scope: The case of the Malaysian halal food industry. J Int Entrep 13, 418–451 (2015). https://doi.org/10.1007/s10843-015-0160-x

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