Internationalization of Small and Medium-Sized Enterprises in Iran

1. Internationalization of Small andMedium-Sized Enterprises in Iran FirouzehGhanatabadi(2005) Luleå University of Technology

2. abstract • Purpose: to gain a better understanding of the process ofinternationalization of SMEs in Iran • Question :how can the entrepreneurs’ impact on the process of internationalization of the SMEs in Iran be described? • Three theoretical approaches: internationalization, entrepreneurship and social networks analysis • Data collection: personal interviews, questionnaires • 16 cases in pilot • 20 cases in main

4. Chapter one • Definitions: • Small and Medium-Sized Enterprises • Internationalization • Describe context: • General Domestic Environment of Manufacturing Sector in Iran • Number of Enterprises by Size Category and Sector

5. Pilot Phase - Exploratory Case Studies • 16 case studies within the manufacturing sector in Iran during summer /spring 2002 • entrepreneur was the unit of analysis • informal conversational (unstructured) interview • Case selection: KOMPASS business-to-business database • the database was searched for manufacturing (all types of industry) and exporting firms that also have less than 250 employees • The total qualified firms sorted were 248

6. Pilot Phase - Exploratory Case Studies • Due to shortage of time and budget limitation, “convenience, access, and geographic proximity” (Yin, 1994, p.75) were considered as the main criteria for selecting the pilot cases • Cases were selected purposely from 157 companies situated in Tehran on the basis of two criteria: ‘accessibility’ and ‘responsiveness’. • 16 case accept after first call • Interview start

7. Pilot Phase - Exploratory Case Studies • Review of the interviews shows that the information could be classified in seven categories: • 1. Driving forces that influence the owner-manager’s decision for entering international operations • 2. Methods and policies that they have used to start their operations • 3. Methods, policies they use present • 4. Plans for the future • 5. Countries they are operating in or have operated in • 6. The reason for selecting these countries • 7. Their target market for the future

8. Pilot Phase - Exploratory Case Studies • Analysis of findings and Conclusion • Dependency on importing technology and raw material was one of the factors that widely influenced the firms’ decisions and operations in international markets • In three cases (numbers 6, 8 and 13), industry-specific knowledge and management background of the owner-manager provide the possibility of product diversification that enabled them to enter the world market • No particular relationships were found between the type of industry and behavior of the firms. For example, cases 4 and 10 (furniture industry), or cases 9 and 14 (shoe industry) had followed different processes in their international operations. • Pricing policies was one of the major concerns

9. Pilot Phase - Exploratory Case Studies • In summary, the findings of the pilot study revealed three types of driving forces that influence the internationalization of SMEs in Iran; therefore, research questions should be developed in three areas: • 1. Characteristics of the entrepreneur (owner-manager/decision-maker) with emphasis on entrepreneurship dimensions and their relationships • 2. Characteristics of the firm with emphasis on the type of the relationship with the world market • 3. Characteristics of domestic environment with emphasis on identifying the problems, barriers and opportunities

10. Chapter two- Literature Review • In this chapter, based on a thoughtful and critical review of related literature, we aim at building a theoretical framework for the next chapter. While seeking, through the review of literature, to learn how others have delineated similar problems, it is also our intention to ensure that this research does not duplicate what others have already done. Conceptualization of the research problem in the first chapter has located this study within three disciplines: internationalization, social network and entrepreneurship

11. 3 object of chapter two • 1. conceptualize and develop the frame of reference and identify research questions; • 2. show that the researcher has identified some gaps in previous research and that the proposed study will fill a demonstrated need, and • 3. refine and redefine the research questions by embedding those questions in larger empirical traditions (Marshall & Rossman, 1999)

12. Chapter Three – Operationalization; Research Problem, Research Questions and Theoretical Frame of Reference • Problem Discussion and Theoretical Foundation: • Radical changes in the business environment, the central role of SMEs in the development of the private sector and integration into global economy as the best way to overcome poverty and inequality in developing countries (Raynard & Forstater, 2000), and the lack of academic studies about internationalization of SMEs in developing countries (Das, 1994; Coviello& McAuley, 1999) lead us to the selection of this area of research for further investigation in Iran

13. Chapter Three – Operationalization; Research Problem, Research Questions and Theoretical Frame of Reference • Problem Discussion and Theoretical Foundation: • We will attempt to clarify this through investigation of three issues: • impact of the entrepreneur who makes decisions and leads the firm in the process of internationalization; • driving forces that influence entrepreneurs’ perceptions, decisions and actions towards involvement in international operation, and • factors that influence the entrepreneur’s decision regarding the entry mode and market selection

14. Propositions and assumptions • Therefore, consistent with: 1) the findings of SME internationalization studies that identify entrepreneur(s) as the only key factor (Miesenbock, 1988), and 2) findings of the pilot study, built on the theory of entrepreneurial discovery, we conceptualize the process of SME internationalization as an entrepreneurial action. A process that is driven through discovery and exploitation of foreign market opportunities by entrepreneurs. • we assume that the process of internationalization starts through the discovery of foreign market opportunities by the entrepreneur. • we assume that knowledge of foreign market opportunities is contingent upon idiosyncratic benefit of each entrepreneur’s social network. • we assume a perspective that views entrepreneurs as embedded in networks of continuing social relations.

15. Research question • How do entrepreneurs’ social networks affect the process of internationalization of the SMEs in Iran? • How do entrepreneurs’ motivation, attitude and behavior affect the process of internationalization of SMEs in Iran? • How do entrepreneurs’ skills and experiences affect the realization of the process of internationalization of the SMEs in Iran through selection of entry mode and market? • How do entrepreneurs’ perceptions of the firm’s characteristics affect the process of internationalization of SMEs in Iran? • How do entrepreneurs’ perceptions of domestic environment and state of industry affect the process of internationalization of the SMEs in Iran?

16. The Theoretical Frame of Reference • According to Zaltman et al. (1982), “a frame of reference is the set of ideas and outlooks we generally use in viewing things. It is our set of unspoken assumptions, expectations and decision rules. • It reflects their perception of the world – their reality and is characterized by researchers’ assumptions concerning how the phenomena occurred and their preferences for particular symbol systems (mathematical, logical and so on) • frames of reference serve several major functions: providing orientation, conceptualizing problems and determining possible solutions • the frame of reference explains the key factors, constructs or variables and their presumed relationships either graphically or in narrative form. In this study we choose the graphical form(Miles and Huberman (1994))

19. Chapter Four – Methodology

20. Research Paradigm • Since in this study we aim at understanding of the process of internationalization of SMEs in Iran through the impact of the entrepreneurs who make choices based on their subjective, individual evaluation of alternatives under uncertainty, the constructivism paradigm seems appropriate for this study.

21. Research Approach • qualitative research is appropriate for understanding human phenomena (entrepreneur’s orientation, action and behavior), and is useful in investigations of interpretations and meanings that people give to events that they have experienced (entrepreneur’s perception). • The qualitative approach enables us to assess the complex process of internationalization, not only to understand the internationalization of SMEs and the role of entrepreneurs, but also to search for driving forces that lead SMEs toward international operations

22. Research Strategy • In this study, although the research problem and the research questions are “how” questions types but we have also attempted to provide a better understanding of the internationalization of SMEs through answering “why” entrepreneurs adopt international activities. Therefore, the ‘case study’ strategy suits the purpose of this study for the following reasons. • 1. The investigator has no control over the events and focuses on contemporary events. • 2. Case study shares “a desire to understand how the social world looks from the perspective of the person being studied” (Sullivan, 2001, p.332); therefore, it supports the purpose of this study to understand the process of internationalization of SMEs through the entrepreneurs’ perceptions and attitudes. • 3. Since the case study strategy provides the possibility of gaining a holistic view of the process of internationalization (Yin, 1994) it enables us to identify the driving forces that lead entrepreneurs toward involvement in international operations.

23. Research design and unit of analysis • Multiple- embedded design • The entrepreneur’s impact on discovery and realization of foreign market opportunities • embedded subunits of analysis • The information benefits of entrepreneurs’ social network • The entrepreneurs’ motivation in the discovery of foreign market opportunities • The entrepreneurs’ attitude in the discovery of foreign market opportunities • The entrepreneurs’ behavior in the discovery of foreign market opportunities • The entrepreneurs’ skills and experience in the selection of entry mode and market • The entrepreneur’s perceptions of the firm’s characteristics in the process of internationalization of the SME • The entrepreneur’s perceptions of domestic environment in the process of internationalization of the SME • The entrepreneur’s perceptions of state of industry in the process of internationalization of the SME

24. Selection of Cases • purposive and theoretical sampling • Yin (1994) has defined three main criteria for selection of cases: convenience, access and geographic proximity. In both stages of this study, sampling begins with accessible sites (convenience sampling) and builds on insights and connections from the early data collection.

26. Data Collection • Yin (1994) refers to three forms of interview: open-ended nature, focused, and structured questions. • The interviews conducted in this study were focused on a pre-determined set of discussion topics. However, opportunity was left open for any type of response. In fact we used interview guide approach in this study, because it provides topics or subject areas within which the interviewer is free to explore, probe and ask questions that elucidate and illuminate the subject under investigation

27. The interview guide covers questions such as: • general information about the background of the firms including the main motives of the establishment of the firms, the founders of the firm, the relationships between the founders and the present managers. • position of the firm in the domestic, • international activities of the firm and the entrepreneur’s perception of international market opportunities, • entrepreneurs’ motivations for international activities and their activities, • entrepreneurs’ characteristics, • firm’s characteristics, • entrepreneur’s source of information about market opportunities, and • impact of domestic environment on the firm’s international activities

29. Following each interview, the interviewee was presented with a questionnaireand was asked to complete it at their earliest convenience and return. Although the questionnaire is secondary in importance to the interview in this research, the questionnaire as an alternative data collection method. Data collected by questionnaires permitted initial statistical testing of the means’ differences in two Clusters.

31. Data Analysis • we have adopted both qualitative and quantitative methods for analysis of the data • Qualitative analysis: • In this study, in consistent with Yin (1994) and Marshall & Rossman (1999), we use the research questions and theoretical propositions in the analytic phase. Each case is presented separately in descriptive mode and the empirical evidence is presented and organized in accordance with the conceptual framework and the embedded units of analysis. Interview results in each case are assembled and integrated in accordance with each area. However, as we have adopted embedded units of analysis, the analysis of embedded units of analysis is conducted within each case and then pattern of explanation within each case is compared across case.

32. Qualitative analysis • In fact, based on the research problem and research questions, empirical data from each case study has been presented separately • In fact we begin the case analysis with within-case analysis for each subunit of analysis for each interviewee. • The empirical data from each interview has been compared against the theoretical framework • The within-case analysis was then followed by the cross-case analysis of each subunit of analysis

33. Qualitative analysis* • Based on the findings of within-case analysis and consistent with “replication logic” governing the selection of cases in this study, the selected cases were divided into two clusters to develop the theoretical framework based on similar (literal replication) and contrasting (theoretical replication) results. Finally, the findings and conclusions are discussed and presented on the basis of the conceptual framework

34. Quantitative Data Analysis • Descriptive Statistics • T-Test of Differences in Group Means

35. Quality Criteria • In order to ensure the integrity, validity and accuracy of the findings (Yin, 1994; Guba& Lincoln, 1994; Patton, 1990) different steps were taken. Firs of all, principles of triangulations such as the following were used in collection and investigation of the same data. • different sources (interview and documentation) • different measures (recording the answers during interview and written answers to questionnaire) • different types of questions (open-ended, close-ended, yes-no, and five-point Likert) • different method (cross-case, quantitative method including mean analysis, t-test)

37. Chapter Five – Empirical Study of the Internationalization of SMEs in Iran

38. General information

39. General information

44. Mini case narrativewithin case analysis • This section is devoted to case narratives organized along topics identified in the theoretical model and embedded units of analysis as follow: • Topic 1: Brief history of the firm, its activities and position in the domestic market • Topic 2: Entrepreneurs’ (owner/manager) characteristics and background • Topic 3: Entrepreneurs’ perception of international market opportunities • Topic 4: Entrepreneurs’ social network; information benefits • Topic 5: Entrepreneurs’ motivations, attitude and behavior • Topic 6: The firm’s characteristics & motivating forces • Topic 7: Entrepreneurs’ characteristics and selection of entry mode and market • Topic 8: Entrepreneurs’ perception of general national conditions; economic freedom and entrepreneurial conditions • Topic 9: State of competition in the industry; freedom of entry

45. Case Number 1001- TAK MACARON • Topic 1: Brief history of the firm, its activities and position in the domestic market • The firm was established on 1995 and started production one year later. The firm is equipped with the latest technology and machinery from Switzerland and Italy in this industry. The machinery is fully automatic and employees are well trained and educated. The firm is established on the basis of the knowledge of founders of the booming demand in the domestic market and related technology. One of the sister firms is the representative of the very well known supplier of machinery in this industry. On the date of establishment, Turkish products were dominant in the market. After one year, due to the quality and quantity of the products, the firm managed to replace the Turkish products and became the market leader, commanding the majority share of the market.

46. Case Number 1001- TAK MACARON • Topic 2: Entrepreneurs’ (owner/manager) characteristics and motivations • The founders /owners of the firm are very well experienced businessmen who have very good knowledge of the domestic and world market. They established this firm to meet a growing market that belonged to foreign producers, particularly Turkish producers. The firm has two sister firms; one is the sole agent of a very well known brand of machinery from Switzerland and the other sister firm is a producer of carpet.

47. Case Number 1001- TAK MACARON • Top 3: Entrepreneurs’ perception of international market opportunities • With respect to domestic market demand, the top management has given priority to the domestic market. But after the development of activities in the domestic market and becoming the market leader, due to the growing production capacity (400 tons per day), exporting to other countries has been taken into consideration as an alternative for growth and development. Therefore, in order to know the opportunities and consequently launch their international activities they are basically relying on their agents, Internet research and other relationships.

48. Case Number 1001- TAK MACARON • Topic 4: Entrepreneurs’ social network; information benefits • The main sources of information about the market opportunities are the agents of the firm in each market and domestic businessmen. In addition to these sources, the firm launches some market research projects in different markets either through their agents, other relationships or independently for information collection.

49. Cross - Case Analysis