The process of globalization has changed our world in a number of ways. From companies’ perspectives new production and sales markets have arisen beyond local borders and their numbers continue to grow. The motives and goals of internationalization of SME are, in general, very similar to those of bigger companies. The most important factors are additional market opportunities and thus a higher sales potential of products that are already established on the home market.
The internationalization of companies entails opportunities but also risks. Several key factors must be considered and specific requirements fulfilled. The prerequisites and also the demands of SMEs differ considerably from bigger companies. A company’s business success in a foreign market depends significantly on the capability of finding a suitable and attractive market for one’s own product and service offers. After identifying the target market, the form of market entrance needs to be chosen. The typical forms are the export, licensing/franchising, branch establishment, subsidiary establishment and the joint venture. Regarding the software industry, the internationalization strategy depends highly on the degree of standardization. On this case the need of international customization must also be taken into account.
This assignment is an introduction into the first steps and the specific challenges of SMEs in the course of internationalization. Short definitions of the terms of internationalization and SMEs, an overview of the companies’ motives and goals, and specific characteristics related to this topic are given. Subsequently, the different options and decision-making processes are presented and specifically exemplified for software providing companies.
Table of Contents
1 Introduction
1.1 Problem and objective
1.2 Scope of work
2 Fundamental terms
2.1 Definition of SME
2.2 Definition of Internationalization
3 International management of SMEs
3.1 Motives and goals of Internationalization
3.2 Special characteristics of SME
4 International strategy development
4.1 Target market selection
4.2 Form of market entrance
4.2.1 Export
4.2.2 Licensing / Franchising
4.2.3 Branch establishment
4.2.4 Subsidiary establishment
4.2.5 Joint Venture
5 Internationalization strategy of software companies
5.1 Preliminary considerations
5.1.1 Standard vs. Customized standard software
5.1.2 Local standardization of products
5.2 Resuling strategies
5.2.1 Target market selection
5.2.2 Form of market entrance
6 Conclusion and Outlook
Objectives and Topics
The primary objective of this work is to provide an introduction to the internationalization process for small and medium-sized enterprises (SMEs), with a specific focus on the unique challenges and strategic decision-making processes faced by companies in the software industry.
- Theoretical definitions of SMEs and internationalization in a global context.
- Analysis of key motives, goals, and inherent characteristics of SMEs.
- Structured methodology for target market selection and market entry strategies.
- Specific internationalization requirements for standard, customized, and custom software providers.
Excerpt from the Book
4.2.1 Export
The most common form of entry into a foreign market is the export. Export in general means the cross-border sales of goods and services to a consignee in another country. A distinction must be made between direct and indirect exports. Direct export involves the selling of company products or services directly to the end customers without any distributors. Indirect export refers to the distribution in a foreign market via distributors.
The benefits of an export strategy are the significantly lower costs due to the unnecessary setting up of an infrastructure in the target market and the economies of scale by using and expanding the existing production capacity. However, this approach demands high similarity between home and target markets: Due to joint production and the lack of proximity to the foreign market and its customers, addressing the markets individual needs is only possible to a limited degree. Furthermore, the labor costs for production in the home market may be too high for realizing competitive prices in several countries.
Summary of Chapters
1 Introduction: This chapter outlines the global business environment, defines the motivation for internationalization, and sets the scope for the assignment.
2 Fundamental terms: This section provides clear definitions of SMEs and internationalization, establishing the conceptual basis for the study.
3 International management of SMEs: This chapter examines the specific motives for global expansion and the unique operational characteristics and constraints of SMEs.
4 International strategy development: This section details the process of selecting target markets and evaluates various forms of market entry, from export to joint ventures.
5 Internationalization strategy of software companies: This chapter applies the previously defined strategies to the software sector, distinguishing between standard, customized, and custom software models.
6 Conclusion and Outlook: The final chapter summarizes the key challenges and provides recommendations for further industry-specific analysis.
Keywords
SME, Internationalization, Global Strategy, Market Entry, Software Industry, Export, Subsidiary, Joint Venture, Globalization, Strategic Management, Target Market, Market Attractiveness, Customization, Competitive Advantage, Risk Management
Frequently Asked Questions
What is the core focus of this publication?
The paper focuses on the internationalization process of small and medium-sized enterprises (SMEs), particularly exploring how these companies can successfully enter foreign markets.
What are the primary themes discussed?
The main themes include definitions of internationalization, the specific operational hurdles SMEs face, market selection frameworks, and entry mode selection.
What is the ultimate goal of the research?
The goal is to serve as an introductory guide that provides SMEs, especially those in the software sector, with a structured approach to identifying and entering new foreign markets.
Which methodology is employed in this work?
The work utilizes a literature-based analysis to synthesize existing management theories and applies these concepts to the specific business models found in the software industry.
What does the main body cover?
The main body covers the theoretical definition of terms, the motivation for global growth, detailed phases of target market analysis, and a comparative review of market entry forms.
Which keywords define this work?
The work is defined by terms such as SMEs, software companies, market entry, strategic management, and internationalization strategies.
How does software standardization impact the choice of market entry?
The level of software customization is critical; standard software providers can often utilize export models, while providers of custom software benefit significantly from having a local on-site presence.
Why is on-site presence recommended for custom software?
On-site presence is recommended because custom software requires deep, ongoing collaboration and relationship-building with the client, which is difficult to manage remotely.
What are the primary risks for SMEs when internationalizing?
SMEs face high risks due to limited financial resources, dependency on a small management team, and the potential for severe consequences if international investment decisions fail.
How does the author categorize software products?
The author categorizes them into standard software, customized standard software, and custom software, each requiring different levels of local market adaptation.
- Citar trabajo
- Erik Somssich (Autor), 2017, Internationalization of SMEs exemplified for software companies, Múnich, GRIN Verlag, https://www.grin.com/document/437734
