The Proactive Initiation of SMEs’ Foreign Business Relationships

• Author: Daniel Tolstoy
• Date: 01 December 2019
• Published date: 01 December 2019
• DOI: http://doi.org/10.1111/emre.12303

The Proactive Initiation of SMEs’Foreign

Business Relationships

DANIEL TOLSTOY

House of Innovation, Stockholm School of Economic, Stockholm

Taking control over one’s destiny by proactive internationalization has beenconsidered an important performance

indicator in smallbusiness research. We developa model that examineshow internal and external contextual factors

influence SMEs’foreign market entry through proactive initiation of business relationships in foreign markets. The

ability to proactively leverage suchrelationships is essential for opening up avenues intoforeign markets and serves

as a first step in negatingthe liability of outsidershipthat could prohibit firmsfrom acquiring relevant market-specific

resources. By examining the dynamics that eithercan enable or constrain firms in their efforts to becomeinsiders in

foreign marketsin the entry phase, we contribute to international small businesstheory. We also add conceptual and

practical insights to internationalsmall business researchby providing valuable empiricalverification of how and to

what extent the proactive initiation of foreignbusiness relationships of SMEs is internallyor externally conditioned.

Keywords: Proactive; business relationships; foreign market entry; SME; outsidership

Introduction

Research has repeatedly demonstrated the pervasiveness

and importance of business relationships when breaking

into foreign markets (e.g., O’Cass and Weerawardena,

2009; Sandberg, 2013). Business relationships not only

provide access to markets but also allow smaller firms to

leverage external knowledge to overcome market barriers

(Johanson and Vahlne, 2009, 2011). They can also be

conducive for transferring and exploiting business

opportunities discovered in other markets (Nordman and

Tolstoy, 2016). For example, a business solution that

was developed for a customer in one particular country

may later be transferred and exploited in a relationship

with another customer in another country. To be able to

exploit such opportunities, companies need to enter

foreign marketsby proactively initiating relevantbusiness

relationships.Therefore, the proactive initiation of foreign

business relationships is arguablyinstrumental for smaller

firms wishing to leverage their competences in foreign

niches segments (see Hagen et al., 2017; Zhou et al.,

2010). This behavior can enable firms to become insiders

in foreign markets through their own initiative (Buckley

and Prashantham, 2016), and spurs international business

development. It is thus relevant to investigate the factors

that explain foreign market entry through proactive

initiation of business relationships of small- and

medium-sizedenterprises (SMEs). In this paper,we argue

that foreign market entry through proactive initiation of

foreign businessrelationships is determinedby contextual

factors related to the firm (degree of internationalization

and intellectual property) and its environment (network

embeddedness,competitive rivalry, and culturaldistance).

In line with research demonstrating that contingency

factors shape international SMEs’strategic decision

making (Brouthers and Hennart, 2007; Canabal and

White, 2008; Child and Hsieh, 2014; Freeman et al.,

2006; Nordman and Tolstoy, 2016; Sui and Baum,

2014), the specific purpose of this article is to develop a

model that examineshow internal and external contextual

factors influence SMEs’foreign market entry through

proactive initiation of business relationships in foreign

markets. This investigation can increase our

understanding of how firms can become insiders in

foreign markets (Johanson and Vahlne, 2009) and

contribute with new insights of how firms can act on

opportunities in these settings (Nowiński and Rialp,

2016). The abilityto leverage foreign-marketrelationships

is crucial for creating inroads into foreign markets and for

offsetting the liability of outsidership, which implies

reduced access to market knowledge and market-relevant

resources (Johanson and Vahlne, 2009). Even though

insidership is increasingly attracting the attention of

Correspondence: Daniel Tolstoy, House of Innovation,Stockholm School

of Economic, P.O. 6501, 11383 Stockholm. Phone: +46-8-7369532.

E-mail Daniel.tolstoy@hhs.se

©2018 European Academy of Management

DOI: 10.1111/emre.12303

European Management Review, Vol. 16, –, (2019)

1159 1173