Determinants of SME Internationalisation and the Impact on Business Performance: An Empirical Study of Outward Internationalisation Adoption by Malaysian SMEs

The reduction in trade barriers, rapid governments’ bilateral agreements and the improvement of communication technology have increased opportunities for businesses to expand their activities in foreign markets (Javalgi et al., 2003). In conjunction with this phenomenon, previous studies suggest that there is an increasing number of Small and Medium Sized Enterprises (SMEs) conducting international business (e.g. Oviatt and McDougall, 2005; and Ketkar and Acs, 2013). However, Asia Pacific Economic Cooperation (APEC) Policy Support Unit (2010) has recorded a slightly lower share of total export value by SMEs in developing countries vis-a-vis developed countries. This research investigates the different factors influencing SMEs’ decision to internationalise in developing countries (such as Malaysia). This research also examines the relationship between the SME internationalisation adoption and its business performance since the relationship remains vague (Kuivalainen and Sundqvist, 2007; Lu and Beamish 2006; and Zahra et al., 2000). Furthermore, the study deepens understanding of the complex interrelationship between internationalisation determinants (that influence top management’s decision to internationalise) and how such factors (internal and external) have an impact upon SME’s business performance. This paper underlines the following research questions: i) what are the different determinants impacting internationalisation adoption of Malaysian SMEs? ii) how the integration of internal and external determinants impact internationalisation adoption by Malaysian SMEs? iii) what is the role of ethics attributes in influencing Malaysian SMEs’ decision to internationalise? iv) what are the impacts of internationalisation adoption on Malaysian SMEs’ financial and non-financial performance? This research has designed the research methodology based on the post-positivist approach to achieve the research aims and answer the research questions. The triangulation approach was started from an in-depth literature review by systematically stratifying previous research studies in the field. The researcher subsequently conducted semi-structured interviews to purify the findings in the extant literature. 20 vii Malaysian experts including Malaysian internationalising SMEs and public officials were interviewed during the purification phase. The research samples were selected purposefully from a publicly available export directory which was obtained from Malaysia External Trade Development Corporation (MATRADE) website. This research has developed the research framework and hypotheses based on the findings of exploratory interviews. The following step tested the framework through empirical research to prove its validity in explaining SMEs’ internationalisation in Malaysia. A mix of online and mail survey questionnaire was conducted to test the research hypotheses empirically. Finally, the research analysed 218 survey data in various statistical techniques including Cronbach-Alpha test, simple linear regression, multiple regression, structural equation modelling (SEM) and one-sample t-test. This study found that factors influencing internationalisation of Malaysian SMEs vary. While all measures related to entrepreneur/ human capital, firm and environmental attributes have a significant positive relationship to internationalisation adoption, the measures related to ethics attributes are found not impacting internationalisation adoption by Malaysian SMEs. However, the research found environmental attributes and perceived level of internet fraud mediate the relationship between firm attributes and internationalisation adoption by Malaysian SMEs. Finally, internationalisation adoption is found positively significant in impacting the financial and non-financial performance of SMEs in Malaysia. This research will contribute to the academic activities, practitioners and policymakers. For academic activities, research contribution is about understanding the different factors impact on internationalisation adoption, which several factors are yet, undiscovered in Malaysia such as ethics attributes and management entrepreneur orientation (as discussed in chapter 3 and chapter 11). Furthermore, this research contributes to fulfilling the limited number of study in determining difference factors of Malaysian SMEs internationalisation by adopting a holistic research approach involving quantitative and qualitative methods. Also, it contributes to differentiating internationalisation determinants across sectors as previous literature concentrated only upon the manufacturing sector in Malaysia context. Furthermore, the research expands the integrative model of understanding SME internationalisation by Coviello viii and McAuley (1999) in investigating the role of ethics attributes in internationalisation adoption which have never been studied. For practitioners, this research provides a guideline to entrepreneurs or managers who look for determinants that can accelerate internationalisation process of their firms. Also, internationalised SMEs may use the result of this research as a guideline to strengthen their firms and to be more competitive in foreign markets. Policymakers, government and business support agencies may also benefit from this study regarding accommodating the most appropriate support to SMEs who wish to diversify their business abroad, which in turn, will help the government in increasing country’s GDP performance and providing more employability opportunities for citizens