What capabilities help SMEs not just arrive but thrive in other countries? Research comparing the export journeys of SMEs in Aotearoa, Chile and Colombia highlights what New Zealand SMEs can learn from their Latin-American counterparts.
Services (including digital) offer Aotearoa New Zealand, Chile and Colombia a shared opportunity: to not only diversify their commodity-driven economies, but to also help their SMEs break through the confines of small local economies and into international markets.
Some SMEs make it to new shores but fail to thrive, while others grow and flourish. What capabilities prove the difference? Researchers interviewed service-orientated SME exporters in New Zealand, Chile and Colombia about their internationalisation efforts and the capabilities they developed to undertake these journeys.
The researchers found that SMEs need to lift their capabilities to more dynamic levels to evolve their business models and sustain growth.
Their findings show that New Zealand SMEs could lift and quicken their efforts by learning from Latin-American SMEs, such as how to better utilise networks and support, as reported in their article, Capabilities and the internationalisation of smaller-sized, service-oriented firms in the southern hemisphere (abstract only/paywalled).
The Context talked to Dr Tanya Jurado of Massey University’s School of Management, who undertook the New Zealand end of the research.
Dr Jurado could possibly be the Sir David Attenborough of New Zealand SMEs, having for many years researched the eco-systems of the small yet important businesses that operate under the shadow of the nation’s commodity-producing apex businesses. Passionate about supporting inclusive business and internationalisation, Dr Jurado jumped at the chance to compare and contrast the experiences of New Zealand SME service exporters with their Chilean and Colombian counterparts.
Dr Jurado’s first research task unintentionally illustrated the nature of New Zealand’s pool of international SMEs—small but exciting. “They proved harder to find than I expected – there weren’t many of them, and they were all busy people.”
Perhaps unsurprisingly, of the eleven businesses she recruited, about 80% were in the digital technology, information and communications (ICT) services sectors. Their customers were mostly large retail organisations, while some were government customers. Less surprising was the adventurous nature of these digital businesses.
“I was struck by the dynamism and energy of many of my New Zealand interviewees. Those in the ICT sector were highly experienced and aware of their role at the forefront of change and the digital transformation of the economy,” said Dr Jurado.
Dr Jurado delved into the SMEs’ background through interviews, in many cases with the founding entrepreneurs, about their background, education and experience. She found out how fast they had internationalised, how much they exported and to which countries. Her main questions though, were about what capabilities helped them to compete successfully in offshore markets, and what support helped them overcome the barriers they faced.
Surviving or thriving in international markets: it’s all about developing capability
The interviews helped the researchers compare the extent to which SME managers in New Zealand, Chile and Colombia, developed the capabilities necessary to either survive or thrive internationally. They looked at whether the SMEs had “threshold levels of capability,” merely enabling them to operate outside of their local markets, or “dynamic capabilities,” enabling them to succeed, adapt and grow in international markets.
Businesses with only threshold capabilities for example, lacked planned internationalisation strategies or relied solely on referral marketing. In the researchers' view, it was questionable whether SMEs would sustain growth in new markets without more dynamic capabilities.
While in all three countries most interviewees demonstrated threshold capabilities, dynamic capability varied greatly across the three markets.
“While we were expecting some of our interviewees to be operating only at the threshold level of capabilities, we were surprised by how many were operating at that level,” reported Dr Jurado.
SMEs that had achieved more dynamic capabilities had a strong vision of how to expand beyond national borders, a clear perception of opportunities to compete and grow, and evolving business models to support their export-oriented growth strategy. They also actively developed their capabilities through learning, building trusted network relationships and seeking support from national and local government agencies interested in promoting exports and economic growth.
“In many cases, our interviewees demonstrated exceptional vision and willingness to take risks. One of my New Zealand interviewees was at a fire drill when an idea for a new type of software flashed into his mind. He quit his job to work on the software, released it in New Zealand, and within one year was successfully selling it all over the world.”
Relationships smooth the road for Latin-American SMEs
The SMEs shared common traits across all three countries, but the researchers found important differences in capabilities, which affected how SMEs navigated the road to sustainable internationalisation.
Looking at the common traits, many of the interviewees across all three countries had entered overseas markets after establishing local niche markets, and most of them had launched offshore within three years. They all had detailed knowledge of the global value chains for their markets and, importantly, valued face-to-face engagement with their customers.
“This highlighted the importance of cultural competency—not simply knowing the local language or having an interpreter, but spending time in the target market. Despite our digital age, the interviewees felt that face-to-face communication is essential to understanding who you are working with and how your products will be used and remain viable.” Said Dr Jurado.
Forging relationships was a notable difference between Latin American and New Zealand SMEs, in some cases giving Latin American SMEs successes that New Zealand SMEs could learn from. While all interviewees valued the importance of building and fostering their networks and relationships, the Latin American companies placed even greater importance on them. They not only relied heavily on word-of-mouth referrals from existing customers but also took advantage of support from fellow exporters and national and local government agencies. As Dr Jurado noted:
“The speed of internationalisation of the participants in the Latin American countries was impressive - faster than the New Zealand companies interviewed. This demonstrated to me that New Zealand can learn from developing countries in our own region in addition to looking at how developed economies grow and prosper.”
Similarly, Dr Jurado noted that dynamic capabilities are not just about technical know-how:
“This research demonstrated that companies need to develop more than just their technical know-how if they wish to respond dynamically and remain competitive. They also need to build trusted networking relationships and access support from national and local government agencies and, when possible other exporters.”
Entrepreneurial marketing behaviour aids adaptation—and makes some luck
Another dynamic area where differences mattered was entrepreneurial marketing capabilities: actively pursuing new opportunities, striving to identify customer needs, adding value and building relationships by innovating with creativity, networking and flexibility.
SMEs with dynamic capabilities actively maintained their competitiveness as market conditions changed, and new competing businesses arrived. In contrast, those with threshold levels of expertise were more dependent on referrals and, in some cases, luck to find new customers. The researchers suggested that businesses using all the factors of an entrepreneurial marketing approach could sense and seize new opportunities, adapt and grow—and even make their own luck.
Research supporting SMEs through changing trade conditions
Dr Jurado remains committed to supporting SMEs in their internationalisation efforts, even as international trade is assailed by headwinds such as rising protectionism, the global pandemic, conflict and supply disruptions. The new challenges only add to the importance of understanding the capabilities that today’s SMEs need for sustained and inclusive growth.
“I would love to see further research into how this sector has kept innovating to stay in the market and how they have coped with the challenges of Covid,” said Dr Jurado.
Dr Jurado is also collaborating with local and overseas researchers to learn how indigenous practices can help SMEs enter and succeed in offshore markets.
Feature image: istock/Kiwimate