Financing Sources, Networking and Innovative Management of the Entrepreneurs in the Implementation of Strategies. Internationalization of Ict Software Developing Companies in Paraguay

1. INTRODUCTION

The current technological revolutions have caused numerous international transformations, promoting the integration of a more globalized world. This globalization promoted the internationalization of companies as an indispensable factor for survival in the market. What was previously considered an option became a necessity. Therefore, companies face numerous opportunities and some obstacles to their insertion in the international market.

Global trends show that the business environment varies constantly. ICT companies (Information and Communications Technology) require the development of strategies that allow facing threats in a competitive world, with emphasis on those of insertion and development of markets, product flows, capital, technology and knowledge.

The report of the Telecoms and Society (2015) argues that the business world operates in an environment where information technology fundamentally changes society, the economy and business models in particular. It is considered that this is due to the impact of the 3,000 million people with Internet access (43% of the world population, 2014) with the prospect of continuous growth. However, about 63% of the world population uses a cellular service. It is concluded that every day increases the number of people with access to the Internet, either by computer or smartphone. It is expected that by 2020, 80% of adults will have access to a Smartphone (as quoted in Fernández & Van der Krogt, 2015, p. 2).

The set of ICTs generate very important economic and social opportunities for society. Fernández & Van der Krogt (2015) mention in their work the report of the World Economic Forum (2015) in which it is argued that several studies demonstrate a direct causality between access and adoption of ICT, economic development and reduction of levels of poverty. The contribution to economic development is explained in the production of new goods and services of the ICT sector and the increase in productivity. The impact is greater in developing countries and in particular among low-income groups.

ICTs can generate important benefits for private sector companies; since they provide opportunities for the production of goods and services; they contribute to efficiency and productivity due to the new acquisition, production and distribution processes; and consequently, generate new sales channels (as quoted in Fernández & Van der Krogt, 2015, p. 2).

The report of the World Economic Forum (2015) also concludes that ICTs bring with them the possibility of promoting entrepreneurship and new business models. In this way, the quality of products and services increases due to the change in sales models, which obey the new way of thinking and the direct relationship with customers (as quoted in Fernández & Van der Krogt, 2015, p. 2).

The same report shows that the level of adoption of ICT and its economic use is not the same for different countries. Paraguay is in position 105 of the 143 countries studied. By comparison, Germany is in 13th place, while Chile and Uruguay are respectively in places 38 and 46 (as quoted in Fernández & Van der Krogt, 2015, p. 3).

Paraguay still has several challenges to be achieved in order to take advantage of ICTs, including access to adequate infrastructure and digital content. Other limitations are centered on the political and regulatory environment, on the government, as well as on the private sector and on the own competitive deficiencies of ICT development and application (Fernández & Van der Krogt, 2015, p. 3).

With respect to the internationalization of small and medium enterprises; Jones, Coviello & Tang (2011) maintain that it has had a great advance in recent years.

Among the main behavioral approaches in the internationalization of companies, the following models are mentioned: the Uppsala Model, initially developed by authors such as Johanson & Vahlne (1977), Johanson & Wiedersheim-Paul (1975) and Johanson & Mattson (1988); the revised Uppsala Model or Network Approach (Johanson & Vahlne, 1977, 1990 and 2009), as cited in De Carvalho (2017, p. 18).

The third model of interest, initially proposed by Oviatt & McDougall (1994), McDougall, Shane & Oviatt (1994) and Knight & Cavusgil (1996) corresponds to the Born Global Companies. There is also the International New Ventures Model addressed by Del Castillo (2009, p. 4) which share similarities in the overall business activities and entrepreneurial approach, thus it is important to clarify they are not the same but for the sake and interest of this research the differences won’t be stablished.

On one hand, the theory of internationalization processes "Uppsala Model" explains that companies go out to new markets gradually, slowly compromising their resources for the development of export activities. Under this model, companies are internationalized in stages, developing first locally and then in external markets (Johanson & Vahlne, 1990).

On the other hand, both the Model of the International New Ventures (INV) and Born Global Companies (BGF), explains that it is possible to observe some young, medium and small companies that develop a rapid internationalization exporting to different markets from practically the beginning of its operations. These young companies do not expect to learn from the experience in the local market to start exporting, so they do not follow a process of gradual internationalization (as quoted in Del Castillo, 2009, p. 4).

So far, the international entrepreneurship field has placed more interest on the process of internationalization and in particular, on the distinct characteristics of firms that internationalize rather rapidly and not so much on the reasons for early and fast internationalization (Neubert & Van der Krogt, 2017, p. 134).

Early and fast internationalization of BGFs is considered as entrepreneurial and risk seeking. It is often associated with the ability, experience and willingness of the entrepreneur. The entrepreneur went through the first phases of the Uppsala Internationalization process model before founding the new HSFs (Neubert & Van der Krogt, 2017, p. 134).

BGFs that internationalize early and fast are often HSFs with innovative products and services, which operate in a small global market niche. They have a higher probability to be located in from small and open economies with a limited home market potential (Neubert & Van der Krogt, 2017, p. 134).

Internationalize in a rather unplanned way following existing clients or random opportunities. BGFs select attractive markets with low market entry barriers where they have an existing client network, local distribution and service partners. BGFs prefer a low-risk market entry mode such as, ‘export’ in combination with local distribution partners, which requires fewer resources and leads to faster results (Neubert & Van der Krogt, 2017, p. 134).

In this perspective, companies have sought to adopt strategies to access the international market, such as the search for competitiveness, access to markets, reduction of operating risks, new sources of financing and others.

The understanding of how an international entrepreneurial opportunity originates allows a greater knowledge about the act of internationalizing. The creation of this opportunity depends on the context in which the entrepreneur acts. In addition, the accumulation of knowledge, resources and networks will influence, among other factors, the willingness of the firm to discover and develop international opportunities (Chandra, Styles, & Wilkinson, 2012).

It can be affirmed that, for the development of international opportunities, it is almost a prerequisite for internationalization to evaluate the most appropriate way in terms of the use of networks and knowledge of the international market (Juho, 2011).

Finally, the present work focuses on the analysis of funding sources, networking and innovative management of the entrepreneur as influential factors in the implementation of strategies for the internationalization of ICT companies developing software in Paraguay.

1.1. Problem Statement

A new and interesting niche in the Paraguayan market is what refers to the contribution of innovative technological solutions by companies in the ICT sector. This research project is originated from the results thrown in Neubert and Van der Krogt’s article about the internationalization of high-tech companies (2017).

In the specific case of companies in the ICT sector in Paraguay, and according to a survey conducted in 2014 by the National Secretariat of Information and Communication Technologies (SENATICS), it was concluded that in this sector they are active 316 companies, of which 26 comprise the sub-sector software developers (Encuesta de empresas del sector de TICs’, Observatorio TICs, Senatics, 2016).

Of these 26 software developers, only 12 are considered innovative and are at some stage of the internationalization process (Neubert & Van der Krogt, 2017).

Currently, software development companies focus more on providing integral solutions that respond to local market needs; so their products are generally not aimed at satisfying the competitive international market that requires high quality specialized products.

Among the main internal challenges encountered by Paraguayan companies when seeking to enter the international market are: the high cost of capital to finance international operations; limited access to financing; the shortage of incentive mechanisms and government support programs; the costs of foreign trade; as well as market prospecting, physical installation, legal support, marketing, brand recognition and technical standards.

In addition, entrepreneurs face a lack of knowledge about the foreign market they wish to insert and the political risks to operate in a given country.

To enter the foreign markets the company can choose different types of strategies. Each internationalization strategy has its own characteristics and offers uses that are analyzed, selected and adjusted to the most favorable options that logically follow the requirements of the company.

In this context, the main research question of the present work is exposed:

How do the sources of financing, networking and innovative management of the entrepreneur influence the implementation of strategies for the internationalization of ICT companies that develop software in Paraguay?

The examination of this question, generated other susceptible to be investigated, such as:

 Which are the characteristics of the entrepreneur in his vision and training for innovation in the internationalization of ICT companies that develop software in Paraguay?

 Can it be considered that the entrepreneur’s experience in business management is important to achieve success?

 Can we confirm that networking influences the internationalization mechanisms of ICT companies that develop software in Paraguay?

 What is the importance of sources of financing in the internationalization of ICT companies that develop software in Paraguay?

1.2. Objectives

1.2.1. General Objective:

Analyze the sources of financing, networking and innovative management of the entrepreneur as factors that influence the implementation of strategies for the internationalization of ICT companies that develop software in Paraguay.

1.2.2. Specific Objectives:

 Characterize the entrepreneur in his vision and training for innovation in the internationalization of the companies studied.

 To know if the entrepreneur experience in business management is considered important to achieve success.

 Identify networking as an influential factor in the internationalization mechanisms of the companies studied.

- Evaluate the importance of funding sources in the internationalization of the companies studied.

1.3. Justification

The globalization of world markets increasingly requires the need for companies that are committed to the development of their expansion abroad, which has increased the importance of internationalization models in business management.

Although internationalization constitutes one of the most important current phenomena for the expansion of companies, achieving a successful process requires knowledge of a series of variables and determining factors. This issue is of great interest given that companies that successfully internationalize are relevant and impact the economy of a country and, therefore, impact on the standard of living of the population.

On the other hand, the strengthening of the software development company contributes to the generation of greater educational and work opportunities that allow a new vision in the innovation of technologies and the expansion of the professional.

In this way, internationalization is a decision that not only guarantees the access of the company to the international market, but also can expand its chances of success, improving working conditions, productive integration, allowing the increase of profits and facilitating the overcoming possible trade barriers.

For all these reasons, export promotion policies and promotion agencies become essential to support small and medium enterprises, which require greater support to initiate and maintain their internationalization processes.

This work has intended to contribute theoretically with useful and relevant information for the segments related to ICT companies, specifically in the subsector of software developers, contributing to make this sector increasingly attractive in terms of profitability and representation at an international level. It is highly important because it will help to contribute to the growth of those technology-based enterprises in the country that decide to implement these strategies, and with this growth and success the development of this sector will be promoted in the country very lagging behind compared to the other countries in the region. It will also encourage entrepreneurs, professionals and students to become familiar with innovative strategies and tools that will allow them to enter the sector of the present and the future: that of ICTs.

From a theoretical perspective, the study included the review and analysis of specialized literature on the internationalization of companies, mainly in reference to sources of financing, networking and innovative management of the entrepreneur in the implementation of strategies that allow the development of ICT companies in Paraguay.

1.4. Scope of the Investigation

The unit of observation of this work is the software development company of the ICT sector. It is defined as "company" to any individual or legal entity that constitutes a unit of production of goods and / or services TICs for third parties, being able to exercise it, one or more activities, in one or more places (Senatics, 2016).

The population was selected based on primary data developed by the Senatics and it did not include internal companies that provide services to a single client, or developers or independent professionals.

The selection of the sample was made based on the secondary data elaborated by Neubert & Van der Krogt (2017): software development companies considered active in the technology sector, which also agreed to be interviewed and answer the survey. The primary source for data collection is qualitative, semi-structured, face-to-face interviews with subject matter experts (SMEs).

From the geographic point of view, the companies were located in the Greater Asunción area, Paraguay. This was due to the fact that most of the companies that responded to the "Survey of Companies in the Information and Communications Technology (ICT) sector" corresponded to the Capital Area and the Central Department, with the response rate in areas of the interior of the country was very low (Senatics, 2016).

Regarding the temporal scope, the data collection for this work was carried out during the months of September to November 2017, being that the reference period of the information and economic data provided by the primary database corresponded to 2014- 2015.

The developed instrument allowed the collection of information regarding the general characterization of the company, the entrepreneur's knowledge about internationalization, sources of financing, networking and innovative management of the entrepreneur.

In general, personal interviews allowed to know some values, criteria and emotions that influence people to make their decisions, especially in companies where they are based on the leadership and experience of their managers.

1.5. Structure of the Thesis

This work is divided into five chapters including this Introduction, where the formal presentation of the work is made, setting out the objectives that reflect the real purposes of the research, the reasons that motivated it and the foundations that support it. It includes the approach of the problem, supported on the basis of general theories related to the problem under study, to concrete data of figures from other studies or research, to the real situation studied or definition of the problem.

The second chapter includes the theoretical framework, which represents the analysis of theories and research where concepts that help to better understand the main aspects related to the internationalization of companies are explained. It presents the importance and necessity of the internationalization of a company as well as the main factors to be studied in the tea model through conceptual, theoretical and bibliographic reflections; and strategies for entering the international market.

Then, in the third chapter the chosen methodological framework is described, where the variables selected from the theoretical framework are exposed and the model to be used for the analysis and data collection is established. It consists of two sections, the first details the methodological aspects such as the universe, defines the target population and sample, the type of research, the sources of information, the methods for obtaining it, the processing of information and the data collection instruments. In the second section, the theoretical model, the variables are defined and operationalized.

The fourth chapter presents the analysis of the results obtained and main findings, which are based on the theories cited in the present work.

Finally, the fifth chapter presents the conclusions that have been reached after the analysis of data in terms of theory and proposed models.

2. THEORETICAL FRAMEWORK

This research project is originated from Neubert and Van der Krogt’s results from their article on internationalization of high-tech companies (2017) and pretends to be a part of the ongoing project.

2.1. Concept of internationalization

With the greater current interdependence of world markets, companies in a country are affected by local economic conditions and by international competition. Globalization and commercial openness have brought the awareness that being international is no longer a luxury, it is rather a necessity for economic survival.

In this way, the concept of internationalization is seen as a gradual process of insertion of the country into the world economy. As cited in De Souza (2017, p. 10), Cortiñas & Silva (2011) define internationalization as a decision that not only guarantees the company's access to the international market, but also expands its opportunities for success, improving its conditions of productive integration, allowing the increase of scale degrees and facilitating the overcoming of possible trade barriers.

According to Dunning (1988), the determining factors for the internationalization of companies are focused on the search for resources, trade facilitation, access to new markets and efficiencies. While for Barbosa (2004), the process of internationalization is seen as a learning process, in which the company gradually acquires knowledge and invests resources in a certain international market (as cited in De Souza, 2017, p. 16).

De Souza describes that the decision of companies to internationalize is also linked to a series of factors, among which he cites the concern of companies to maintain, strengthen and expand their penetration in target markets and gain management and occupational experience.

2.2. Internationalization Theories

The process of internationalization of a company is long, challenging and laborious. In this sense, De Souza (2017, p.16) indicates that internationalization theories help companies to insert themselves in the foreign market, seeking to answer questions such as why, what, when, where and how companies are involved in international business .