Localized capabilities and the internationalization of manufacturing activities by SMEs

In this paper it is argued that the internationalization of production through foreign direct investment (FDI) by small and medium-sized enterprises (SMEs) is in ¯ uenced by local level idiosyncracies. Although SMEs suå er from inherent constraints to international growth (due to the scarce availability of ® nancial and managerial resources), the presence of quali ® ed localized capabilities strengthen and complement their competitive/ownership advantages, thus favour-ing their internationalization. These capabilities are related to the advanced specialized services available to the ® rms, the existence of a ` marshallian atmosphere ’ , and an environment con-ducive to innovation and learning. However, it is argued that negative externalities stemming from protectionism-oriented public intervention discourage the international growth of ® rms and negatively in ¯ uence the propensity of SMEs to internationalize. Empirical support for these premises is provided by this study of the Italian case over the decade 1986 ± 1995