Internationalisation of SMEs in the medical precision instruments industry in Hungary

1. Internationalisation of SMEs in the medical precision instruments industry in Hungary Magdolna Sass IE HAS EACES 2010 bi-annual conference, Tartu, 26-28 August 2010 Prepared in the framework of the KKVENT_8 project

2. Background 1 • Theories of SME internationalisation: stages theories (see e.g. Johanson and Vahlne, 1977), economic theories (Dunning, 1993) and network theories (see e.g. Johansson and Mattson, 1988) • theory on „born globals” (Madsen, Servais, 1997)

3. Background 2 Why the medical precision instruments industry? The industry in Hungary • Relatively high presence and share of Hungarian owned SMEs (based on heritage from the socialist period and spin-offs from universities) • Higher VA, higher share of white collar workers, relatively high R&D expenditures comared to other manufacturing subsectors • Relatively good competitiveness indicators in NMS comparison • Note: Many different products with different market structure, level of competition, regulation The industry internationally: some segments without GVCs – more opportunities for smaller innovative firms (OECD, 2007)

4. Method • E-questionnaire survey to companies with registered R&D: sent out to 150, 23 answered • Interviews with leading managers of 12 firms, based on the same questionnaire, supplemented with open questions • Statistical database of 35 companies (e-questionnaire supplemented by data from the interviewed companies) • Due to the low number of observations, only basic statistical indicators used

5. (Selected) research questions • Which theory describes best the internationalisation of medical precision insturments producing SMEs in Hungary? • Characteristics, motivation, barriers of/to internationalisation – how this relates to results of other empirical investigations?

6. Selected results 1 „Theories and practice” • The majority goes through stages of internationalisation (9 of 12 interviewed) • More stages differentiated based on the interviews: 1. only importing (one interviewed company), importing a high tech product for local sale, 2. exporting and importing connected to outward processing (1 company), 3. exporting and importing companies, but only to and from neighboring countries (2 companies) 4. importing and exporting companies, also to “old” EU members, or even more faraway countries (3 companies) 5. exporting, importing and other foreign relations (R&D, license, franchise etc.) (1 company) 6. Plus OFDI: establishing a representative office (1 company) 7. Plus OFDI at a higher level than representative office (2 companies) • Stages reinforced by the results of the questionnaires • Critique reinforced: one company can internationalise very differently in different markets or even in the same market

7. Selected results 2 • 2 born globals, one potential born global (newly established) from 12 interviewed, 3+1 born globals in total (questionnaire) • Differences in the „innovativeness level” of born globals and stages internationalisers: born globals with new products and technologies in worldwide comparison • Connected to that: ‘born globals’ venture further away from their original locations, and have plants/representative offices in developed countries (main markets), while ‘stages internationalisers’ usually stick to the neighbouring countries/region

8. Selected results 3 • „O” advantage determining for all internationalisers: innovative activities carried out continuously and the main source of innovation is inside the company (contrary to what is found for manufacturing companies in (former) transition economies by e.g. Balczerowicz et al., 2009) • Network theory: informal networks, especially informal/personal membership in (international) R&D networks acts as a strong inducement for higher level internationalization, (similarly to Osarenkhoe, 2008), (5 of 12 interviewed, esp. spin-offs), but even for internationalisation („passive exports”, Bilkey, Tesar, 1977 in two companies)

9. Results 4 • Overall higherlevel of internationalisation of SMEs in the sector compared to other manufacturing sectors in Hungary and compared to SMEs in the EU • the majority of the companies ’stuck’ at a lower level of internationalisation, and does not want to move further • the explanation of this lies in barriers to internationalization • this is usually not financial (similarly to the results of Greenaway et al., 2007), except for born globals • but more human and absorption factors (similarly to Zuchella, 2009), including language knowledge, management capacities etc.

10. Results 5 • the most important motivation of investing abroad is market-seeking (similarly to the results of Svetlicic et al, 2007 for SMEs from (former) transition economies), but due to the specificities of the sector, ‘knowledge-seeking’ investments (Hollenstein, 2008) are also important • „push factors” more important than „pull factors”, exc. for born globals • Economic policy: groups of SMEs, which differ to a great extent in motivation, capacities etc.

11. Thank you for your attention!