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Understanding SME entry into emerging markets
Entry strategies of foreign firms into India and China are rapidly growing topics in the marketing and international business literatures (Johnson & Tellis, 2008; Luo, 2004; Luo & Park, 2001) and most research on foreign firms doing business in emerging markets concludes that firms find these markets to be quite different to those of the developed Western world (Neilsen, 2005). For example, the institutional environment choice of market entry strategy, market segmentation and the role of intermediaries reflect some of the challenges that firms face in entering and doing business in emerging markets (Freeman & Sandwell, 2008). However, as Johnson and Tellis (2008) note, how firms succeed in these markets has gone largely unexamined in the academic literature.
In this study, we explore the drivers for successful market entry and development by small and medium-sized enterprise (SMEs) into one of the large emerging markets – India. In doing so, we make several contributions. First, our study exclusively addresses SMEs, and does not include larger firms following FDI strategies. Recent research on international entrepreneurship has examined entry and performance with respect to emerging markets, but to date, there has been little, if any, research on foreign SME entry and development in the large emerging economies. Given that many developed economies rely largely on SME activity for their GDP growth (Ayyagari, Beck, & Demirguc-Kunt, 2007), focusing on the internationalisation of this subgroup of firms is critical. Second, by incorporating a range of country level variables, we consider the role of institutions (both host and home country) on SME entry and development. This augments the increasing attention paid to the role of institutions in foreign firms’ engagement with emerging markets (Meyer, Estrin, Bhaumik, & Peng, 2009a; Peng, Wang, & Jiang, 2008). Third, following Benito, Petersen, & Welch (2009), we broaden our investigation to include post-entry factors that influence the longer term involvement of SMEs in India. It is important to consider market entry as a dynamic process that includes how firms develop after entry (Gao, Murray, Kotabe, & Lu, 2010; O’Farrell, Wood, & Zheng, 1998). Fourth, where the literature does address emerging markets and SME internationalisation, the emphasis has been on SMEs from emerging markets (Amal & Filho, 2010; Zhu, Hitt & Tihanyi, 2006) as opposed to SMEs entering emerging markets. In particular, the entry of SMEs from developed countries into large emerging markets is an under-researched area. Finally, we offer a theoretical context for SME internationalisation into emerging markets. This extends existing research, which has focused on identifying key influencing variables and antecedents of success (Johnson & Tellis, 2008). The link between resource availability and the effects of institutions has recently led researchers to argue that more insights can be gained by combining an institution-based view with resource-based views of international business in emerging markets (Meyer et al., 2009a; Wright, Westhead and Ucbasaran., 2005). In responding to what the top international marketing and management journals seek to publish (Lepine & Wilcox King, 2010) and ‘combining lenses’ (Okhuysen & Bonardi, 2011), we develop a new theoretical position for SME internationalisation to emerging markets that extends theoretical insights from studies of MNE market entry behaviour (Meyer et al., 2009a)