This article is part of a series looking at knowledge management (KM) in small and medium enterprises (SMEs).
In a previous article we presented the findings of a recent study reviewing and critiquing the knowledge management (KM) literature relating to small and medium enterprises (SMEs).
Internationalisation has become a key requirement for SMEs to gain competitive advantage, which results in an increasing effort in managing the companies’ internationalisation processes.
A comprehensive systematic literature review (SLR) of the role of information, knowledge and collaboration in internationalisation decisions of SMEs was conducted to answer two research questions:
RQ1: what is the role of information, collaboration and knowledge in the effectiveness of the SMEs’ internationalisation processes?
RQ2: what topics and issues related with information, collaboration and knowledge are considered when SMEs manage their internationalisation processes?
The adopted SLR followed a five-step approach:
- Question formulation.
- Locating studies.
- Study selection and evaluation.
- Analysis and synthesis.
- Reporting and using the results.
The evaluation of 1,361 potential studies produced a list of 38 relevant studies for analysis and synthesis.
1. Decision-making process
An internationalisation process is typically composed by four key constructs: market selection, decision to enter, entry modes, and factors affecting entry modes.
1.1. Decision to internationalise
It is suggested that SMEs need to own a good knowledge base from various sources (supra-organisational, organisational and individual) in order to decide to go international, i.e. another decision must be made concerning the collection of knowledge related to the start of the international activity.
1.2. Entry mode selection
Entry mode selection is described as one of the most critical decisions in internationalisation strategies. Factors explaining the choice of entry mode include the decision-maker’s perception of favourable conditions for accessing knowledge, technology, production costs and capital in the home market.
1.3. Foreign market selection
Another critical decision considered in the reviewed literature is the foreign market or host country selection. Social and business relationships and network partners seem to be the most important factors influencing market selection decisions.
3.1.4. Collaboration decisions and commitment decisions
Two other types of decisions were identified concerning: (i) collaboration; and (ii) commitment. Firms are seen to decide to collaborate and choose vertical or horizontal collaboration forms depending on the motives for establishing an alliance and on the network partners’ positions in the value chain. In terms of commitment decisions, the conclusion is drawn that the decision to commit further resources to foreign operations, and the organisation of international business activities, are affected by market knowledge and by the amount of resources already assigned to a specific country.
3.1.5. Decision mode
Four main decision modes that managers may follow when they internationalise have been identified, ranging from a low to a high level of planning and rationality: (i) reactivity, where decision-makers are more conservative and take decisions by responding to immediate situational demands or environmental changes; (ii) incrementalism, often mentioned as “muddling through”, where decision-makers make successive limited comparisons of possible actions, or limited increments from existing conditions, to avoid negative consequences; (iii) bounded rationality, where decision-makers are more rational and goal-directed but have some limitations to secure and process relevant information; (iv) real options reasoning, where decision-makers have a rational way of reducing risks associated with both incomplete information and uncertainty, making comparisons between alternatives.
The decision mode to be adopted has implications in terms of the required information, and also the other way around, i.e. reactivity and incrementalism modes may require uncodified and relatively narrow information while more planned decision modes (bounded rationality and real options reasoning) may require more codified and wide information.
2. Information management process
The study makes a clear distinction between information and knowledge, stating that although they are both critical in the SMEs’ internationalisation process, they influence it in distinct ways.
2.1. Need for information
Many SMEs still face difficulties in internationalisation processes, and the lack of information has been identified as one main obstacle in those processes. Decision-makers need to search and acquire information, in order to identify market opportunities in foreign countries. For this purpose, large amounts of information are required to compensate the lack of prior knowledge and experience, and as a way to reduce internationalisation uncertainties. Therefore, due to the imperfect access to information, entering foreign markets can represent a significant risk for SMEs, with extra costs for collecting information and for seeking and evaluating partnerships. When SMEs move into new international markets, information processing increases and becomes more complex.
2.2. Information sources, information sharing and information subjects
Different sources of information are used by SMEs in internationalisation processes, ranging from social and business relations to previous international experiences. Decision-makers typically choose their information sources as a function of their perceived utility. Firms can use internal and external sources to develop new market-specific knowledge and learning: they can learn from internal sources through direct experience in their operations and using internally stored information, and/or from external sources by using the experience of others and externally available information.
The increasing availability and diversity of information sources, suggest that companies consider more rational decision modes when comparing alternative strategies.
Networks have been playing an important part in the decision-making processes, and it is suggested that collective knowledge is more important in internationalisation due to the individual difficulties of SMEs in searching information.
Information sharing was found as being of great importance to the development of trust and synergy to sustain collaboration relationships.
The main subject that SMEs look for within their information sources was about foreign market conditions.
2.3. Importance of decision-makers’ characteristics in information management
The analysis of the literature shows that decision-makers have experiences, backgrounds, and personal characteristics that form their cognitive perspectives influencing the way how they identify, seek and process information. With this cognitive basis they influence decisions by directing their vision, filtering their perceptions, and interpreting information.
3. Knowledge management process
3.1. Need for knowledge
Based on the analysed literature, knowledge in internationalisation can be understood as the interpretation of information and beliefs, from different experiences (by individual managers, firms, and networks), thus creating a learning process for making better decisions. Previous works had shown that internationalisation decisions are the result of a process of acquisition, assimilation, and interpretation of knowledge about foreign markets and international strategies. This learning process through a knowledge base allows SMEs to have favourable attitudes for internationalisation, to make more rational decisions, and to reduce uncertainty. Knowledge has been shown to have a critical role in the decision of a company to retain or release executives after performing an international acquisition. The retention seems to be mainly justified by the knowledge the firms own, in order to avoid losses of critical knowledge that is useful for the business.
SMEs need knowledge to support their internationalisation processes and the lack of this important element represents one of the main obstacles for SMEs wanting to go international. Many SMEs have been found to be incapable of either predicting risks or turning internationalisation into a sustainable competitive advantage, mainly due to the lack of suitable tools for managing knowledge acquired from previous experiences.
3.2. Knowledge nature and knowledge assimilation
Some studies show that knowledge assimilated by SMEs in internationalisation processes is both tacit and explicit in nature. Tacit knowledge is quite valuable for firms, but this type of knowledge is more difficult to be measured and expressed. Due to its high complexity and tacitness, the knowledge involved in an internationalisation process negatively impacts the process of transferring it abroad. This leads SMEs to opt for entry modes with low levels of investment and commitment, such as subcontracting. Less codified knowledge (tacit knowledge) increases the probability of an acquirer company retaining executives after the acquisition. The main justification is that when a new acquirer/owner directly controls and manages the company, knowledge will be of a more tacit nature and less codified, and therefore retaining executives because of their extensive tacit knowledge seems to be the best option.
The assimilation of knowledge is viewed as a key feature for SMEs wanting to internationalise. The strategies on how to acquire knowledge significantly influence the outcomes of the SMEs’ international operations. By accumulating knowledge, firms can better understand foreign cultures, markets, and operations, thus improving the quality of decision-making. For instance, it has been concluded that the accumulation of knowledge about foreign markets allows SMEs to reduce uncertainty and consequently increase the probability of future entries in similar markets. It has been found that firms often adopt high levels of formality in sharing and assimilating knowledge, such as formal planned events for sharing both explicit and tacit knowledge and the codification of tacit to explicit knowledge.
3.3. Knowledge types
Distinct types of knowledge have been highlighted in the literature of firms’ internationalisation processes:
- Market knowledge: objective or explicit information about foreign markets, e.g. market size, labour costs and skills, consumer behaviour, local competitors, payment conditions, regulations, language, norms. Market knowledge requires activity on the market, but it can specifically be assimilated in an explicit form through cognitive learning. Barriers in languages, culture and business practices are overcome and the chance to internationalise early is enhanced due to decision-makers with prior market knowledge.
- Experiential: knowledge that can only be learned through personal experience. Experiential knowledge can come from direct involvement in internationalisation processes (internationalisation knowledge) or from network partners (network knowledge), providing an input for comparing previous international experiences with newly encountered ones.
- Internationalisation knowledge: knowledge accumulated with international experience and knowledge of the existence of opportunities for exploitation. Internationalisation knowledge from international activities can be the understanding about which knowledge is needed in specific situations in an international context.
- Network knowledge: knowledge obtained from social and business networks to facilitate internationalisation. Using network knowledge, firms gain access to new resources and learn new skills with their network partners, this facilitating foreign market entries without requiring many assets.
- Technological knowledge: knowledge that provides specific advantages to firms, such as innovative and unique products or services, which are transferable across borders. To run foreign operations successfully, firms must transfer some technological knowledge (techniques, methods and designs) from home to the host country.
3.4. Knowledge-intensive firms
SMEs can also be classified according to the role of knowledge in their internationalisation activities. The most common terms applied in the analysed articles are knowledge-intensive or knowledge-based firms. These cases are mainly SMEs from the software industry, with all authors agreeing that knowledge-intensive firms tend to differ from more traditional firms. Decisions to internationalise are largely dependent on networks and collaboration to improve foreign market entries. Successful knowledge-intensive SMEs develop their network relationships and focus their resources, in order to enter the leading markets for their products. There is a lack of studies in the literature on the internationalisation of knowledge-based or knowledge-intensive SMEs from developing countries.
4. Other aspects of the collaboration management process
There is growing evidence in the analysed literature that SMEs need to collaborate with other entities to gain competitive advantage in internationalisation. Companies are not isolated entities but rather actors in markets, depicted as social and business relationships systems. It is suggested that SMEs must prioritise the development of networks and collaborations and adopt assiduous and strategic ways of pursuing such opportunities.
Rather than only focusing on networks to share information and knowledge, “collaborative ventures” can be established between firms to complement core competencies, thus providing complementary and attractive products or services to markets, and increasing competitive advantages to internationalise. Collaborative ventures establish what is considered in other research areas as collaborative networks, forming vertical alliances (alliances with upstream and downstream partners), horizontal alliances (relationships with competitors), or even collaboration forms with firms from different sectors.
The success of collaborative ventures and alliances is highly dependent on creating value for all the parties, and it can be measured as a function of choosing the right partners, managing the partner relationship and accumulating relational capital. So, in addition to collaborative strategic decisions that need to be made in collaboration, partner selection is another important decision.
Discussion and research agenda
Some important issues have emerged from the review, and a number of gaps in existing empirical knowledge have also been identified, thus providing suggestions and directions for future research. The issues and gaps relevant to information and knowledge management are presented below.
A good knowledge base is crucial for making better internationalisation decisions and SMEs need first to decide on how to seek information and learn from diverse sources (supra-organisational, organisational and individual) to start to internationalise. Although influenced by both internal and external factors, it seems that the decision of choosing the right entry mode is more dependent on the decision-maker capacity and the internal knowledge base possessed by a firm, while deciding on the foreign market to enter was mainly based on information and experiential knowledge from others (social and business relationships).
An emerging trend is collaboration between SMEs and large firms to respond to globalisation. Therefore, the development of collaborative decision-making models and approaches, based on a multiple criteria setting for relationship establishment, seems to make sense, and can represent another direction to be followed in future studies.
Lack of information and insufficient knowledge was identified as the main obstacles for firms to internationalise. The lack of suitable tools, methods and practices for managing information and knowledge, both from previous experiences and from collaborations with other firms, is another hindrance in the internationalisation processes. Internationalisation requires accessing, processing and organising large amounts of information, so better information and knowledge management in collaboration, maybe through collaborative platforms, is likely to contribute substantially to improve the effectiveness of these processes. However, it is rather surprising the lack of exploratory studies on how state-of-the-art information management models and technologies can be used to significantly improve collaborative decision-making in the internationalisation of SMEs. Moreover, there is no evidence that networking and collaboration are systematically explored in the benefit of more effective internationalisation outcomes.
Important insights about the way information is accessed, processed and used by the decision-makers in internationalisation processes were analysed in this review: age, tenure, information processing capability, international experience and organisational memory are the ones to highlight. Again, this is a relevant topic posing interesting research challenges: do decision-makers have the right skills to cope with the increasing amount and diversity of information potentially useful to internationalisation decisions? Additionally, general information subjects were identified, with the information about foreign markets conditions being recognised as the most relevant. Yet, there is no detailed systematic analysis on the specific content and subject of the information needed for making decisions in internationalisation. This, together with the previous point, set an important path for further research in information management for internationalisation processes.
The topics addressed are limited to the identification of informational needs, general information subjects (e.g. attractiveness of host countries, internationalisation strategies, obstacles and support programmes), decision-makers’ information capabilities, and considerations about information sharing. Therefore, there is a lot to explore regarding information organisation, information life-cycle, informational behaviour of the decision-makers, design of information models supporting internationalisation processes, and the design of IT platforms, necessarily collaborative, to support all the above.
In terms of knowledge management, the knowledge assimilated by SMEs in internationalisation processes could be tacit and/or explicit in nature. In most situations, SMEs have more difficulties with tacit knowledge because it is subjective and hard to formalise. Different types of knowledge are used, such as market knowledge, internationalisation knowledge, network knowledge, and technological knowledge. It can be concluded that there is no specific rule about the use of certain types of knowledge. Instead, SMEs search and assimilate one or more types of knowledge from different sources, according to their specific needs and internationalisation strategies, entry modes or foreign markets to enter. Studies in this regard are limited, so this is also an issue to be added to a possible research agenda, together with the suggestion to study how the role of knowledge varies in the different stages of an internationalisation process.
The different contexts where SMEs are embedded have been pointed out by many researchers as an important aspect that needs to be studied. From the research directions of the literature, it seems to be a need to explore how different SMEs’ contexts would result in different information and knowledge needs to internationalise.
- Eric Costa, António Lucas Soares & Jorge Pinho de Sousa (2016). Information, knowledge and collaboration management in the internationalisation of SMEs: A systematic literature review. International Journal of Information Management, 36, 557 – 569. ↩
Also published on Medium.