Skip to main content
SpringerLink
Log in

The effect of network competence and environmental hostility on the internationalization of SMEs

  • Published:
Journal of International Entrepreneurship Aims and scope Submit manuscript

Abstract

Research findings suggest that networks offer small and medium-sized enterprises (SMEs) opportunities to internationalize successfully. However, the role of internal organizational competence in the process of developing and maintaining such networks in hostile external environments has received little attention. The aim of this study is to shed light on the relationship by examining the positive influence that the network competence of SMEs has on their propensity to internationalize, and on their subsequent international performance. Given that the willingness of firms to enter and perform well in markets appears to also depend on environmental hostilities, this external influence on SME internationalization is incorporated into the study. We also examine whether the level of environmental hostility moderates the relationship between network competence and SME internationalization. The empirical part of the study comprises a web survey of 298 Finnish SMEs representing five different industry sectors: metal, food, furniture, software, and knowledge-intensive business services. Confirmatory factor analysis and regression models are used in the analysis. The results indicate that higher levels of network competence are positively related to the propensity of SMEs to internationalize, as well as to their international performance. Conversely, the level of environmental hostility has a negative effect on the performance measure, but not on the internationalization propensity. Additionally, the influence of network competence is not moderated by environmental hostility. The results indicate that internal network competence and external environmental hostility play a role in SME internationalization, and that the positive influence of network competence exists independently of the hostility in the environment.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2

Similar content being viewed by others

References

  • Achrol RS (1997) Changes in the theory of interorganizational relations in marketing: towards a network paradigm. J Acad Mark Sci 25(1):56–71

    Google Scholar 

  • Anderson JC, Gerbing DW (1982) Some methods for respecifying measurement models to obtain unidimensional construct measurement. J Mark Res 109:453–460

    Google Scholar 

  • Anderson JC, Gerbing DW (1984) The effect of sampling error on convergence, improper solutions, and goodness-of-fit indices for maximum likelihood confirmatory factor analysis. Psychometrika 49(2):155–173

    Google Scholar 

  • Anderson JC, Gerbing DW (1988) Structural equation modeling in practice: a review and recommended two-step approach. Pyschol Bull 103(3):411–423

    Google Scholar 

  • Anderson JC, Håkansson H, Johanson J (1994) Dyadic business relationships within a business network context. J Mark 58(4):1–15

    Google Scholar 

  • Awuah GB (2007) A professional services firm’s competence development. Ind Mark Manag 36(8):1068–1081

    Google Scholar 

  • Äyväri A, Möller K Understanding relational and network capabilities: a critical review. In: 24th IMP-conference, Uppsala, 2008.

  • Bagozzi RP, Yi Y (1988) On the evaluation of structural equation models. J Acad Mark Sci 16(1):74–94

    Google Scholar 

  • Barringer BR, Harrison JS (2000) Walking a tightrope: creating value through interorganizational relationships. J Manag 26:367–403

    Google Scholar 

  • Bell J (1995) The internationalization of small computer software firms: a further challenge to “stage” theories. Eur J Mark 29(8):60–75

    Google Scholar 

  • Bell J, Crick D, Young S (2004) Small firm internationalization and business strategy: an exploratory study of ‘knowledge-intensive’ and ‘traditional’ manufacturing firms in the UK. Int Small Bus J 22:23–56

    Google Scholar 

  • Bluedorn AC (1993) Pilgrim’s progress: trends and convergence in research on organizational size and environments. J Manag 19(2):163–191

    Google Scholar 

  • Bonaccorsi A (1992) On the relationship between firm size and export intensity. J Int Bus Stud 23(4):605–635

    Google Scholar 

  • Bourgeois LJ III (1980) Strategy and environment: a conceptual integration. Acad Manag Rev 5(1):25–39

    Google Scholar 

  • Boyd B (1990) Corporate linkages and organizational environment: a test of the resource dependence model. Strateg Manag J 11(6):419–430

    Google Scholar 

  • Boyne GA, Meier KJ (2009) Environmental turbulence, organizational stability, and public service performance. Adm Soc 40(8):799–824

    Google Scholar 

  • Bucklin LP, Sengupta S (1993) Organizing successful co-marketing alliances. J Mark 57(2):32–46

    Google Scholar 

  • Chakravarthy B (1997) A new strategy framework for coping with turbulence. Sloan Manag Rev 38(2):69–82

    Google Scholar 

  • Chetty S, Campbell-Hunt C (2004) A strategic approach to internationalization: a traditional versus a" born-global" approach. J Int Mark 12(1):57–81

    Google Scholar 

  • Chiu YTH (2008) How network competence and network location influence innovation performance. J Bus Ind Mark 24(1):46–55

    Google Scholar 

  • Churchill GA Jr (1979) A paradigm for developing better measures of marketing constructs. J Mark Res 16(1):64–73

    Google Scholar 

  • Contractor FJ, Lorange P (2002) The growth of alliances in the knowledge-based economy. Int Bus Rev 11(4):485–502

    Google Scholar 

  • Coviello NE (2006) The network dynamics of international new ventures. J Int Bus Stud 37(7):713–731

    Google Scholar 

  • Coviello NE, McAuley A (1999) Internationalisation and the smaller firm: a review of contemporary empirical research. Manag Int Rev 39(3):223–256

    Google Scholar 

  • Coviello NE, Munro HJ (1995) Growing the entrepreneurial firm: networking for international market development. Eur J Mark 29(7):49–61

    Google Scholar 

  • Coviello NE, Munro H (1997) Network relationships and the internationalisation process of small software firms. Int Bus Rev 6(4):361–386

    Google Scholar 

  • Covin JG, Slevin DP (1989) Strategic management of small firms in hostile and benign environments. Strateg Manag J 10(1):75–87

    Google Scholar 

  • Day GS (1994) The capabilities of market-driven organizations. J Mark 58(4):37–52

    Google Scholar 

  • Dess GG, Beard DW (1984) Dimensions of organizational task environments. Adm Sci Q 29(1):52–73

    Google Scholar 

  • Diamantopoulos A, Siguaw JA (2000) Introducing LISREL: a guide for the uninitiated. Athenaeum Press, Gateshead

    Google Scholar 

  • Doole I, Grimes T, Demack S (2006) An exploration of the management practices and processes most closely associated with high levels of export capability in SMEs. Mark Intell Plan 24(6):632–647

    Google Scholar 

  • Duncan RB (1972) Characteristics of organizational environments and perceived environmental uncertainty. Adm Sci Q 17(3):313–327

    Google Scholar 

  • Dyer JH, Singh H (1998) The relational view: cooperative strategy and sources of interorganizational competitive advantage. Acad Manag Rev 23(4):660–679

    Google Scholar 

  • Eisenhardt KM, Martin JA (2000) Dynamic capabilities: what are they? Strateg Manag J 21(10–11):1105–1121

    Google Scholar 

  • Evers N (2010) Factors influencing the internationalisation of new ventures in the Irish aquaculture industry: an exploratory study. J Int Entrep 8:392–416

    Google Scholar 

  • Fletcher R (2008) The internationalisation from a network perspective: a longitudinal study. Ind Market Manag 37(8):953–964

    Google Scholar 

  • Fornell C, Larcker DF (1981) Evaluating structural equation models with unobservable variables and measurement error. J Mark Res 18(1):39–50

    Google Scholar 

  • Freytag PV, Ritter T (2005) Dynamics of relationships and networks—creation, maintenance and destruction as managerial challenges. Ind Mark Manag 34(7):644–647

    Google Scholar 

  • Granovetter M (1985) Economic action and social structure: the problem of embeddedness. Am J Sociol 91(3):481–510

    Google Scholar 

  • Gulati R, Nohria N, Zaheer A (2000) Strategic networks. Strateg Manag J 21(3):203–215

    Google Scholar 

  • Hair JF, Anderson RE, Tatham RL, Black WC (1998) Multivariate data analysis, 5th edn. Prentice Hall, New Jersey

    Google Scholar 

  • Håkansson H, Snehota I (1989) No business is an island: the network concept of business strategy. Scand J Manag 5(3):187–200

    Google Scholar 

  • Hanna V, Walsh K (2008) Interfirm cooperation among small manufacturing firms. Int Small Bus J 26(3):299

    Google Scholar 

  • Heide JB, John G (1990) Alliances in industrial purchasing: the determinants of joint action in buyer–supplier relationships. J Mark Res 27(1):24–36

    Google Scholar 

  • Hitt MA, Lee H, Yucel E (2002) The Importance of social capital to the management of multinational enterprises: relational networks among Asian and Western firms. Asia Pac J Manage 19(2):353–372

    Google Scholar 

  • Jantunen A, Puumalainen K, Saarenketo S, Kyläheiko K (2005) Entrepreneurial orientation, dynamic capabilities and international performance. J Int Entrep 3(3):223–243

    Google Scholar 

  • Jarratt D (2008) Testing a theoretically constructed relationship management capability. Eur J Mark 42(9/10):1106–1132

    Google Scholar 

  • Johanson J, Mattson LG (1988) Internationalization in industrial systems—a network approach. In: Vahlne J-E (ed) Hood N. Strategies in global competition Croom Helm, New York, pp 214–287

    Google Scholar 

  • Johanson J, Vahlne JE (1977) The internationalization process of the firm: a model of knowledge development and increasing foreign market commitments. J Int Bus Stud 8(1):23–32

    Google Scholar 

  • Johanson J, Vahlne JE (2003) Business relationship learning and commitment in the internationalization process. J Int Entrep 1(1):83–101

    Google Scholar 

  • Johanson J, Vahlne JE (2009) The Uppsala internationalization process model revisited: from liability of foreignness to liability of outsidership. J Int Bus Stud 40(9):1411–1431

    Google Scholar 

  • Johanson J, Wiedersheim Paul F (1975) The internationalization of the firm: four Swedish cases. J Manage Stud 12(3):305–323

    Google Scholar 

  • Jöreskog KG, Sörbom D (1996) LISREL 8 user’s reference guide. Scientific Software, Chicago

    Google Scholar 

  • Kale P, Dyer JH, Singh H (2002) Alliance capability, stock market response, and long-term alliance success: the role of the alliance function. Strateg Manag J 23(8):747–767

    Google Scholar 

  • Kale P, Singh H (2009) Managing strategic alliances: what do we know now, and where do we go from here? Acad Manag Perspect 23(3):45–62

    Google Scholar 

  • Keupp MM, Gassmann O (2009) The past and the future of international entrepreneurship: a review and suggestions for developing the field. J Manag 35(3):600–633

    Google Scholar 

  • Knight GA, Cavusgil ST (2004) Innovation, organizational capabilities, and the born-global firm. J Int Bus Stud 35(2):124–142

    Google Scholar 

  • Kuivalainen O, Sundqvist S, Puumalainen K, Cadogan JW (2004) The effect of environmental turbulence and leader characteristics on international performance: are knowledge based firms different? Can J Adm Sci 21(1):35–50

    Google Scholar 

  • Lee Y, Cavusgil ST (2006) Enhancing alliance performance: the effects of contractual-based versus relational-based governance. J Bus Res 59(8):896–905

    Google Scholar 

  • Leonidou LC, Katsikeas CS, Samiee S (2002) Marketing strategy determinants of export performance: a meta-analysis. J Bus Res 55(1):51–67

    Google Scholar 

  • Li H, Atuahene-Gima K (2001) Product innovation strategy and the performance of new technology ventures in China. Acad Manag J 44(6):1123–1134

    Google Scholar 

  • Li L, Qian G (2008) Partnership or self-reliance entry modes: large and small technology-based enterprises’ strategies in overseas markets. J Int Entrep 6(4):188–208

    Google Scholar 

  • Loane S, Bell J (2006) Rapid internationalisation among entrepreneurial firms in Australia, Canada, Ireland and New Zealand: an extension to the network approach. Int Mark Rev 23(5):467–485

    Google Scholar 

  • Madsen TK, Servais P (1997) The internationalization of born globals: an evolutionary process? Int Bus Rev 6(6):561–583

    Google Scholar 

  • Mainela T, Puhakka V (2009) Organising new business in a turbulent context: opportunity discovery and effectuation for IJV development in transition markets. J Int Entrep 7(2):111–134

    Google Scholar 

  • Majocchi A, Bacchiocchi E, Mayrhofer U (2005) Firm size, business experience and export intensity in SMEs: a longitudinal approach to complex relationships. Int Bus Rev 14(6):719–738

    Google Scholar 

  • Mascarenhas B, Baveja A, Jamil M (1998) Dynamics of core competencies in leading multinational companies. Calif Manag Rev 40(4):117–132

    Google Scholar 

  • Matanda MJ, Freeman S (2009) Effect of perceived environmental uncertainty on exporter–importer inter-organisational relationships and export performance improvement. Int Bus Rev 18(1):89–107

    Google Scholar 

  • McKinsey, Australian Manufacturing Company (1993) Emerging exporters: Australia’s high value-added manufacturing exporters: final report of the study/by McKinsey & Company and the Australian Manufacturing Council Secretariat to the Australian Manufacturing Council. Australian Manufacturing Council, Melbourne

    Google Scholar 

  • Miller D (1988) Relating porter’s business strategies to environment and structure: analysis and performance implications. Acad Manag J 31(2):280–308

    Google Scholar 

  • Moriarty RT, Kosnik TJ (1989) High-tech marketing: concepts, continuity, and change. Sloan Manag Rev 30(4):7–17

    Google Scholar 

  • Mort GS, Weerawardena J (2006) Networking capability and international entrepreneurship: how networks function in Australian born global firms. Int Mark Rev 23(5):549–572

    Google Scholar 

  • Mouzas S, Henneberg S, Naudé P (2008) Developing network insight. Ind Mark Manag 37(2):167–180

    Google Scholar 

  • Naman JL, Slevin DP (1993) Entrepreneurship and the concept of fit: a model and empirical tests. Strateg Manag J 14(2):137–153

    Google Scholar 

  • Naudé W, Rossouw (2010) Early international entrepreneurship in China: extent and determinants. J Int Entrep 8(1):87–111

    Google Scholar 

  • OECD Definition of small and medium sized enterprises (SMEs) (2008) http://stats.oecd.org/glossary/detail.asp?ID=3123. Accessed 10 Oct 2010

  • Osarenkhoe A (2009) An integrated framework for understanding the driving forces behind non-sequential process of internationalisation among firms. Bus Proc Manag J 15(2):286–316

    Google Scholar 

  • Oviatt BM, McDougall PP (1994) Toward a theory of international new ventures. J Int Bus Stud 25(1):45–64

    Google Scholar 

  • Pagano A (2009) The role of relational capabilities in the organization of international sourcing activities: a literature review. Ind Mark Manag 38(8):903–913

    Google Scholar 

  • Pinho JC, Martins L (2010) Exporting barriers: insights from Portuguese small-and medium-sized exporters and non-exporters. J Int Entrep 8:253–272

    Google Scholar 

  • Prahalad CK, Hamel G (1990) The core competence of the corporation. Harvard Bus Rev 68(3):79–91

    Google Scholar 

  • Rajagopalan N, Rasheed AMA, Datta DK (1993) Strategic decision processes: critical review and future directions. J Manag 19(2):349–384

    Google Scholar 

  • Rennie MW (1993) Born global. The McKinsey Q 4:45–52

    Google Scholar 

  • Rialp A, Rialp J, Knight GA (2005) The phenomenon of early internationalizing firms: what do we know after a decade (1993–2003) of scientific inquiry? Int Bus Rev 14:147–166

    Google Scholar 

  • Ritter T (1998) Innovationserfolg durch Netzwerk-Kompetenz: Effektives Management von Unternehmensnetzwerken. Gabler, Wiesbaden

    Google Scholar 

  • Ritter T (1999) The networking company: antecedents for coping with relationships and networks effectively. Ind Market Manag 28(5):467–479

    Google Scholar 

  • Ritter T (2006) Communicating firm competencies: marketing as different levels of translation. Ind Market Manag 35:1032–1036

    Google Scholar 

  • Ritter T, Gemünden HG (2003) Network competence: its impact on innovation success and its antecedents. J Bus Res 56(9):745–755

    Google Scholar 

  • Ritter T, Gemünden HG (2004) The impact of a company’s business strategy on its technological competence, network competence and innovation success. J Bus Res 57(5):548–556

    Google Scholar 

  • Ritter T, Wilkinson IF, Johnston WJ (2002) Measuring network competence: some international evidence. J Bus Ind Mark 17(2/3):119–138

    Google Scholar 

  • Rugman AM, Collinson S (2004) The regional nature of the world’s automotive sector. Eur Manage J 22(5):471–482

    Google Scholar 

  • Ruokonen M, Nummela N, Puumalainen K, Saarenketo S (2008) Market orientation and internationalisation in small software firms. Eur J Marketing 42(11/12):1294–1315

    Google Scholar 

  • Ruzzier M, Hisrich RD, Antoncic B (2006) SME internationalization research: past, present, and future. J Small Bus Enterp Dev 13(4):476–497

    Google Scholar 

  • Saarenketo S, Puumalainen K, Kuivalainen O, Kyläheiko K (2004) Dynamic knowledge-related learning processes in internationalizing high-tech SMEs. Int J Prod Econ 89(3):363–378

    Google Scholar 

  • Sasi V, Arenius P (2008) International new ventures and social networks: advantage or liability? Eur Manag J 26(6):400–411

    Google Scholar 

  • Schreiner M, Kale P, Corsten D (2009) What really is alliance management capability and how does it impact alliance outcomes and success? Strateg Manag J 30(13):1395–1419

    Google Scholar 

  • Sharma DD, Blomstermo A (2003) The internationalization process of born globals: a network view. Int Bus Rev 12:739–753

    Google Scholar 

  • Shaw V, Darroch J (2004) Barriers to internationalisation: a study of entrepreneurial new ventures in New Zealand. J Int Entrep 2(4):327–343

    Google Scholar 

  • Sivadas E, Dwyer FR (2000) An examination of organizational factors influencing new product success in internal and alliance-based processes. J Marketing 64(1):31–49

    Google Scholar 

  • Sullivan D (1994) Measuring the degree of internationalization of a firm. J Int Bus Stud 25(2):325–342

    Google Scholar 

  • Teece DJ, Pisano G, Shuen A (1997) Dynamic capabilities and strategic management. Strateg Manage J 18(7):509–533

    Google Scholar 

  • The European Union (2003) European Commission recommendation of 6th May 2003 concerning the definition of micro, small and medium-sized enterprises. Official Journal of the European Union, 1422, 361EC

  • Walter A, Ritter T, Gemünden HG (2001) Value creation in buyer–seller relationships: theoretical considerations and empirical results from a supplier’s perspective. Ind Market Manag 30(4):365–377

    Google Scholar 

  • Walter A, Auer M, Ritter T (2006) The impact of network capabilities and entrepreneurial orientation on university spin-off performance. J Bus Venturing 21(4):541–567

    Google Scholar 

  • Welch CL, Welch LS (2004) Broadening the concept of international entrepreneurship: internationalisation, networks and politics. J Int Entrep 2(3):217–237

    Google Scholar 

  • Zahra SA, Garvis DM (2000) International corporate entrepreneurship and firm performance: the moderating effect of international environmental hostility. J Bus Venturing 15:469–492

    Google Scholar 

  • Zahra SA, Ireland RD, Hitt MA (2000) International expansion by new venture firms: international diversity, mode of market entry, technological learning, and performance. Acad Manage J 43(5):925–950

    Google Scholar 

  • Zerbini F, Golfetto F, Gibbert M (2007) Marketing of competence: exploring the resource-based content of value-for-customers through a case study analysis. Ind Market Manag 36:784–798

    Google Scholar 

  • Ziggers GW, Henseler J (2009) Inter-firm network capability: how it affects buyer–supplier performance. Brit Food J 111(8):794–810

    Google Scholar 

  • Zou S, Stan S (1998) The determinants of export performance: a review of the empirical literature between 1987 and 1997. Int Market Rev 15(5):333–356

    Google Scholar 

Download references

Acknowledgment

We would like to thank the two anonymous reviewers and the editor, Professor Hamid Etemad, for their comments, which in our view have helped to improve the paper significantly.

Author information

Authors and Affiliations

  1. Lappeenranta University of Technology, School Of Business, Skinnarilankatu 34, P.O.BOX 20, FI-53851, Lappeenranta, Finland

    Lasse Torkkeli, Kaisu Puumalainen, Sami Saarenketo & Olli Kuivalainen

Authors
  1. Lasse Torkkeli
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Kaisu Puumalainen
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Sami Saarenketo
    View author publications

    You can also search for this author in PubMed Google Scholar

  4. Olli Kuivalainen
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Lasse Torkkeli.

APPENDIX A. The adapted network competence scale

APPENDIX A. The adapted network competence scale

Planning subscale

We evaluate the way our relationship with each partner helps our relations with other technical partners (PART_4)

We evaluate the way the results of collaboration with each of our partners fit together. (PART_6)

We compare our partners in terms of their technical knowledge. (PART_8)

Organizing subscale

We share the same goals with our partners. (PART_1)

We initiate meetings and discussions among those in our firm involved in relationships with our partners. (PART_12)

Staffing subscale

We assign people to each relationship with our partners. (PART_13)

We coordinate the activities involved in different relationships with our partners. (PART_14)

Controlling subscale

We assess how much effort our people put into relationships with partners. (PART_15)

We monitor the extent to which relationships with our partners work to our advantage. (PART_16)

Initiation subscale

We search actively for new partners. (PART_18)

We visit potential partners in order to get to know them. (PART_19)

Exchange subscale

We exchange confidential information with our partners. (PART_21)

We inform others in our firm about the requirements of our partners. (PART_23)

Coordination subscale

We put people from our partners in contact with key people in our firm. (PART_24)

We put people in our firms in contact with key people from our partners. (PART_25)

Rights and permissions

Reprints and permissions

About this article

Cite this article

Torkkeli, L., Puumalainen, K., Saarenketo, S. et al. The effect of network competence and environmental hostility on the internationalization of SMEs. J Int Entrep 10, 25–49 (2012). https://doi.org/10.1007/s10843-011-0083-0

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10843-011-0083-0

Keywords

Search

Navigation