Internationalization as a Necessary Evil. Why Japanese SMEs Hesitate to Expand Internationally and the Manager's Influence on Internationalization Decisions

Abstract

Small and Medium-sized Enterprises (SMEs) have traditionally been restricted to their domestic market but as the world becomes increasingly globalized, so do also SMEs. SMEs represent over 95 percent of the business population in most economies, and thus contribute significantly to both domestic and global economic well-being. Japan is a country facing protracted economic stagnation and a shrinking domestic market; factors that ought to drive SMEs to expand internationally. However, Japanese SMEs are in fact less international than SMEs in comparable countries. This study aims to understand and explain why Japanese SMEs hesitate to expand overseas and how managers influence internationalization decisions. The research consists of a multiple case study, incorporating interviews with managers from five Japanese SMEs. The main finding of this study is that internationalization is perceived as a "necessary evil", primarily caused by factors driving SMEs to expand overseas. These factors include the shrinking domestic market, the fact that internationalization often is a result of a suggestion from a network partner rather than an intrinsic desire to expand overseas, and an outspoken domestic focus among SMEs. Moreover, Japanese SMEs lack internal resources, in particular language skills, and find international networking troublesome. Managers were found to greatly influence internationalization decisions, which largely depend on the manager’s own capabilities to engage in international business, attitude towards international markets, previous international experience and degree of proactivity in searching for internationalization opportunities.