Internationalization of Small and Medium-Size Enterprises from Selected Central European Economies

Abstract

This paper examines differences in outward foreign direct investment (FDI) activity between small and medium-size enterprises (SMEs) and large enterprises in five Central European economies (CEEs). The effects of firm size on motives, barriers, and the competitive advantages of outward investment are examined by surveying 180 firms. Employment effects are examined on a single country. The results indicate more similarities than differences in internationalization patterns and prove SMEs to be capable of internationalization strategies. Similar to large CEE firms, SMEs' investment abroad is mainly market seeking. Both groups of firms identified similar barriers, but SMEs face larger financial and capacity problems. Their larger counterparts enjoy superiority in marketing and production capabilities, but, on average, lack the agility needed for swift and efficient market entry. As SMEs frequently target specialized niches, their main competitive advantages are technological know-how, organizational flexibility, and closer relationships with their customers. Larger competitors, apart from technological know-how, rely on the benefits arising from scale economies and marketing. Home-country employment effects of SMEs are positive and larger than they are for large firms. Our empirical results show that differences found in theoretical propositions and previous empirical studies apply, to a large degree, to companies from CEEs, though the specific characteristics of both types of firms and the intensity of differences are not yet as pronounced as they are in other developed countries, which is to some extent a transition-specific phenomenon. The differences identified suggest adaptations in support policy programs for SME internationalization.