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Management internationalGestiòn InternacionalInternational Management

The impact of entry modes on export knowledge resources andthe international performance of SMEsRaluca Mogos Descotes et Björn Walliser

Paradigme éclectique, modèle Uppsala… Quoi de neuf pour analyserles décisions et modes d’investissement à l’international ?Eclectic paradigm, the Uppsala model… What are the newcontributions and perspectives in the analysis of internationalinvestment decisions and modes?Paradigma ecléctico, modelo Uppsala… ¿Qué hay de nuevo paraanalizar las decisiones y los modos de inversión en el planointernacional?Volume 15, numéro 1, automne 2010

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Citer cet articleMogos Descotes, R. & Walliser, B. (2010). The impact of entry modes on exportknowledge resources and the international performance of SMEs. Managementinternational / Gestiòn Internacional / International Management, 15(1), 73–86.https://doi.org/10.7202/045626ar

Résumé de l'articleCette étude explore le rôle que les modes d’entrée – conceptualisés en tant queformes d’expérience internationale – jouent dans la création des connaissancesà l’export et dans le renforcement de la performance internationale des petiteset moyennes entreprises (PME). Un modèle causal développé et testé sur labase d’un échantillon de 107 PME françaises de l’industrie des métaux, suggèreque les modes d’entrée ont un impact direct sur le niveau des connaissancesexplicites des PME à l’égard des marchés étrangers ainsi qu’un impact indirectsur les connaissances tacites. Les connaissances tacites concernant les marchésétrangers améliorent la performance internationale des PME.

In some cases, the way a small or medium-sized enter-prise (SME)entersa foreignmarket is the resultofan

unplannedencounterduringatradefairoranexploratoryvisit abroad. These SMEs thus lack international experi-enceatthemomenttheymeettheirfuturepartnerabroad.Iftheyknewtheextenttowhichtheconsequencesoftheseencounterswouldshape their learningaboutforeignmar-kets,andultimatelytheirperformanceabroad,theymightthink twicebeforesigning their initialexport,piggyback,or licensing agreement. That is, the choice of a foreignmarketentrymodeisofutmoststrategicimportancefortheinternationaldevelopmentofSMEs(BrouthersandNakos,2005).Someauthorsevencallit“thefirm’smostimportantstrategicchoices”(WoisetschlägerandEvanschitzky,2005,p.4).

Several studies investigate SMEs’ internationalizationprocesses(e.g.,OviattandMcDougall,1994;BarringerandGreening, 1998), including why SMEs choose one entrymodeoveranother (ChooandMazzarol,2001;Brouthersand Nakos, 2005).Various influence factors include firmsize(AgarwalandRamaswami,1992;Calof,1993),expe-rience (Johanson and Vahlne, 1977), product strength(CavusgilandNaor,1987),managerialcapabilities(AabyandSlater,1989),marketpotential (AgarwalandRamas-wami,1992),nationalculture (Mayrhofer,2002),cultural

differences (JohansonandVahlne,1977;KleinandRoth,1990), assets’ specificity (Khemarkem, 2007), and so on.Yet the actual consequences of this choice seem to havereceivedmuchlessattention(ChooandMazzarol,2001)

SincetheintroductionoftheUppsalamodelofinterna-tionalization,theconventionalwisdomisthatentrymodesinfluencetheflowofinformationbetweenthefirmandtheforeign market (Johanson and Wiedersheim-Paul, 1975;Johanson andVahlne, 1977). Entry modes thus facilitateorhamperfirms’access to the foreignmarketknowledgeresources that they require to overcome differences inlanguage, education, business practices, culture, religion,political systems, industrial development, or geographicdistance (JohansonandVahlne,1977;Dow,2000). In themodernbusinessenvironment,knowledge-basedresourcesand thecreationofknowledge through learningarebasicmechanismsthatunderliecompetitiveadvantagesandbusi-nesssuccess(e.g.,Grant,1996;DeNisietal.,2003;Patri-otta, 2004; Warnier, 2005). In the case of SMEs, accesstoknowledge-based resources in foreignmarkets isvital,because theygenerally lackknowledge-basedcapabilitiestodevelopinternationaloperationssuccessfully(e.g.,Kuiv-alainenandBell,2004;Fletcher,2006).

Although entry modes thus strongly influence SMEs’access to knowledge-related resources in export markets

Résumé

Cetteétudeexplore lerôlequelesmodesd’entrée – conceptualisés en tant queformes d’expérience internationale –jouentdans la créationdes connaissancesà l’export et dans le renforcement de laperformance internationale des petites etmoyennes entreprises (PME). Un modèlecausaldéveloppéet testésur labased’unéchantillonde107PMEfrançaisesdel’in-dustriedesmétaux,suggèrequelesmodesd’entréeontunimpactdirectsurleniveaudes connaissances explicites des PME àl’égarddesmarchésétrangersainsiqu’unimpactindirectsurlesconnaissancestaci-tes. Les connaissances tacites concernantlesmarchésétrangersaméliorentlaperfor-manceinternationaledesPME.

Mots clés: mode d’entrée, connaissancestacites et explicites, KBV, PME, perfor-manceinternationale

AbstRAct

This researchconceptualizesentrymodesas forms of international experiencethat small and medium-sized enterprises(SMEs)gatherandexplores the role theyplay in building export knowledge andfosteringinternationalperformance.Usinga sample of 107 French SMEs from thesteelindustry,acausalmodelsuggeststhatvarious entry modes have direct impactson the level of explicit foreign market-related knowledge in SMEs and an indi-rect impact on tacit knowledge. Explicitand tacit knowledge correlate positively,andultimately,anSME’stacitknowledgeregarding export markets improves itsinternationalperformance.

Keywords: entry mode, tacit and explicitknowledge, KBV, SMEs, internationalperformance

Resumen

Esteestudioexploraelpapelquedesempe-ñanlosmodosdeentradaenlacreacióndelconocimiento de la exportación, fomen-tando y reforzando el funcionamientointernacional.Elmodelode investigacióna sido sometidoaun test enunamuestrade 107 PYMES francesas de la industriasiderurgica. Los resultados sugieren quelos modos de entrada tienen un impactodirectoenelniveldelconocimientoexpli-cito de PYMES relacionado con el mer-cado extranjero y un impacto indirectoenconocimiento tácito. Infineel conoci-mientotácitoconrespectoalosmercadosde exportación mejora el funcionamientointernacionaldelasPYMES.

Palabras claves: modos de la entrada,conocimiento tácito y explícito, KBV,PYMESfuncionamientointernacional

The impact of entry modes on export knowledge resources and the international performance of SMEs

rALUcA MOGOS DEScOTES Björn WALLISErIESEG School of Management University of Nancy

74 Management international / International Management / Gestión Internacional, 15 (1)

(Kuivalainen and Bell, 2004; Woisetschläger and Evan-schitzky, 2005) and export performance (Choo and Maz-zarol,2001),relativelylittleempiricalresearchisdirectedspecifically toward this subject. To address this gap, weinvestigatetheimpactofentrymodechoiceonthecreationofexplicitandtacitexportknowledgeandthusultimatelyontheinternationalperformanceofSMEs.

Literature review and research model

Exporting refers to the sale of products and/or servicesbeyond national borders and takes two main forms,namely, direct and indirect exporting (e.g., Miesenbock,1988;Youngetal.,1989).Comparedwithindirectexport-ing (e.g., throughagents, representatives, ordistributors),direct exporting implies more involvement of the export-ingcompany,ahigherlevelofrisk,morecontroloverthedevelopmentofinternationalactivities,andbetteraccesstoknowledgeresourcesinexportmarkets(Mühlbacheretal.,2006).Thus,entrymodesreflectanobviouschoiceintermsofresourcesandcontroldeployment.Theysimultaneouslyaffect the transferofknowledge,creationofvaluewithinthe organization, and diversity of know-how related toexportmarkets(KogutandZander,1993;KuivalainenandBell,2004).EntrymodechoicesareofparticularconcerntoSMEs,moresothanforlargefirms,becausetheyoftenconfrontthesedecisionsintheearliestphasesoftheirinter-nationalizationprocessbecausetheyhavefewerresources,which makes any investment more risky (WoisetschlägerandEvanschitzky,2005).

entRy modes As FoRms oF InteRnAtIonAL expeRIence

When SMEs develop their international activities, theypursuevariousdirect and indirect entrymodes, includingexporting,franchising,licensing,piggybacking,jointven-tures, strategic alliances, and subsidiaries abroad. DirectandindirectexportingconstituteessentialformsofSMEs’commitmentsabroad(Belletal.,1992;Bell,1995;Covi-ello and McAuley, 1999; Kuivalainen and Bell, 2004).These entry modes therefore represent forms of interna-tionalexperience, in thatbydefinition, theyrepresent thewayacompanyaccessesforeignmarkets.

Theroleofinternationalexperienceforfirms’learningandknowledgecreationiswidelyrecognizedinthefieldoforganizationallearning(e.g.,Kolb,1976,1984;NelsonandWinter,1982)andwiththeknowledge-basedview(KBV)of the firm (Grant, 1996, 2002; Patriotta, 2004; Spender,2007).According to theKBV,knowledgedevelopment isapath-dependentprocessthatrequirespreviousexperienceasadrivingfactoroffuturedevelopment(KuivalainenandBell,2004;Kodama,2005).Knowledgeresourcesentailasystemofcodified information (KogutandZander,1993;Autioetal.,2000),andknowledgecanbetacitorexplicit.

tAcIt And expLIcIt knowLedge

Explicit knowledge is objective by nature. It takes formssuch as quantifiable data, codifiable procedures, univer-sallyacceptedprinciples, scientific formulas,ormanuals.Becauseexplicitknowledgeiscodifiable,itistransferable(Nonaka,1991,Nonakaetal.,2000).Firmslikelypossessexplicitknowledgeaboutforeignclients,competitors,andmarketenvironments(Ramangalahy,2001).

Tacit knowledge instead is embedded in individualmembersofthefirm(Nonaka,1994).Itissubjective,expe-riential,andhardtoformalize(Nonakaetal.,2000),whichmeansitismorelikelytobeaunique,inimitable,immobileresource (Barney, 1991). It reflects distinct pathways forfirmdevelopment,suchthatrivalslikelycannotuseordis-seminateit(NelsonandWinter,1982).Tacitknowledgegetstransferredorbuilt throughexperienceandaction (KogutandZander,1993;Grant,1996;Spender,1998).Inexport-ingSMEs,Ramangalahy(2001)highlightstheimportanceofseveraltypesoftacitknowledge,suchascompetenceinexport information management, networking, segmenta-tion,andmarketingmixmanagement.

ReseARch pRoposItIons

As a basic proposition, we posit that entry modes repre-sent formsof internationalexperience,becausebydefini-tion, they are the basic mechanisms that small firms usetoextendtheiractivitiesbeyondnationalborders.Variousstudiesdeliverempiricalsupportregardingtheimportanceof the level of export experience as it pertains to SMEs’international development (e.g., Cavusgil and Zou, 1994;Hartetal.,1994;OgbuehiandLongfellow,1994).

The KBV acknowledges the role of entry modes asformsofinternationalexperienceintheknowledgecreationprocess(Mahoney,1995;Christensen,1995;Barney,1996).Asaresult,theKBVprovidesaninterestingframeworkforour research. Indynamic, turbulentenvironments,knowl-edge-basedassets,especially tacitones,makekeycontri-butionstoperformance(Grant,1996;MillerandShamsie,1996;DeNisietal.,2003;Patriotta,2004;Spender,2007).AccordingtotheKBV,knowledgecreationthroughlearn-ingisthemechanismthatleadsfirmstowardasustainablecompetitive advantage and success (e.g., DeNisi et al.,2003;Patriotta,2004;Warnier,2005).

Thus,accordingtotheKBV,entrymodesasformsofinternationalexperienceenhancethedevelopmentof tacitand explicit knowledge in small firms related to foreignsettings.Furthermore,tacitandexplicitexportknowledgeinfluencesthelevelofinternationalperformancebyfirms.We rely on these basic premises to develop our researchhypotheses.

The impact of entry modes on export knowledge resources and the international performance of SMEs 75

Impact of entry modes on foreign market knowledge resources.

Ifentrymodesrepresentformsofinternationalexperience,theyshouldinfluencethedevelopmentofforeignmarket-relatedknowledge.Asfirmsaccumulateinternationalexpe-rience,theydeveloproutines,rules,andactionproceduresthathelpthemsolveproblemsonthebasisoftheirpreviousforeignexperience(Laghzaoui,2007).Internationalexperi-enceinthiscontextreferstotheknowledgethatenterprisescancapitalizeonbydoingbusinessinagivenmarket(e.g.,CavusgilandZou,1994;Basly,2007;Nguyen,2007).

Theaccumulationofknowledge is a functionofboththelengthandthevarietyofexperiences.Lengthofexperi-encereferstothetimeduringwhichfirmsoperateabroadusing a specific entry mode. It is logical that a firm thathasused,forexample,indirectexportingfor20yearshasmoreforeignexperiencethanafirmthathasbeenexportingindirectlyforonly5years.Therefore,wesumthenumberof years an SME has operated abroad under one or sev-eralentrymodesasameasureofthelengthofitsinterna-tionalexperience.However,thisindicatorislimitedinthatitassumesdifferentforeignentrymodesareequivalent.Tooffset this limit,wetakeintoaccount thevarietyofentrymodesused(seehypothesis3).

Theuseof experience to explainSMEs’ internationaldevelopment is well established in extant literature.Withexperience, firms can better exploit export market infor-mation and opportunities, improve their consolidation offoreign knowledge-related capabilities, and perform bet-ter internationally (e.g., Johanson andWiedersheim-Paul,1975; Denis and Depelteau, 1985; Johanson andVahlne,1993;WelchandLuostarinen,1993).With theirpreviousexperience, small firms also may be more likely to dis-cover how to exploit export market-related informationand opportunities to improve their foreign market-relatedknowledge.Thus,weexpectthat

H1: The length of international experience of an SME positively affects the level of its foreign market-related explicit knowledge.

Becausetacitknowledgeresultsfromdistinctdevelop-mentpathways(NelsonandWinter,1982;Spender,1998),buildsover time, and is consolidated throughexperience,wealsoexpectthat

H2: The length of international experience of an SME positively affects the level of its foreign market-related tacit knowledge.

However, several scholars warn that length measuresare limited indicators of foreign market-based learningprocesses(e.g.,KuivalainenandBell,2004).Furthermore,the availability of electronic information and the dynam-ics of globalization reduce internationalization learningcycles.Therefore,itseemsusefultoconsiderinternationalexperiencevarietyinadditiontolength(CohenandLevin-

thal,1990).Afirmusingseveralentrymodesshouldcon-frontawiderrangeofexperiencesinforeignmarketsthana firm that relies on one unique mode. In this sense, weargue that entry modes affect knowledge transfer, valuecreationwithintheorganization,andthediversityofknow-how related to export markets (Kogut and Zander, 1993;KuivalainenandBell,2004).Therefore,thevarietyofentrymodesSMEsusetoenterforeignmarketssummarizestheirexperienceandhasanimpactonboththeirexplicitandtacitforeignmarket-relatedknowledgelevels:

H3: The variety of entry modes used by an SME posi-tively affects its level of explicit foreign market-related knowledge.

H4: The variety of entry modes used by an SME posi-tively affects its level of tacit foreign market-related knowl-edge.

Recursive relationship between explicit and tacit knowledge.

Explicit foreignmarket-relatedknowledgeprovidesguid-ance for how SMEs should respond to foreign marketsshifts. Explicit knowledge is codifiable and transferable(Nonaka,1991,Nonakaetal.,2000),andwhenitbecomesencoded in firms’ actions, explicit knowledge transformsinto tacit knowledge (Nonaka, 1994; Autio et al., 2000;Nonaka et al., 2000).Tacit knowledge in turn provides abetter understanding of incoming explicit knowledge.Therefore scholars often consider knowledge creation acycleoraspiral,wheretacitandexplicitknowledgebuildon each other (Nonaka, 1994; Hedlund, 1994; Spender,1998).Inturn,wepropose

H5: The level of explicit and tacit export knowledge of an SME are positively correlated.

Impact of explicit and tacit knowledge on international performance.

Finally, in dynamic, turbulent environments, knowl-edge-basedassetscontributetoperformance(Grant,1996;Miller and Shamsie, 1996; DeNisi et al., 2003; Patriotta,2004;Spender,2007).FormanufacturingSMEsthatunder-takeaninternationalizationprocess,strongempiricalsup-portindicatesthattheirinternationalmarketingknowledgehasasignificantimpactontheirinternationalperformance(e.g.,Miesenbock,1988;FordandLeonidou,1991;Holz-müllerandKasper,1991;Axinnetal.,1996;CavusgilandZou,1994;Ramangalahy,2001;JulienandRamangalahy,2003;LeonidouandKatsikeas,1996;Sousa,2004;Morganetal.,2003;Zouetal.,2003).AccordingtotheKBV,thepositionaladvantageanSMEgainsthroughitsinternationalmarketing knowledge determines its international perfor-mance.Therefore,

H6: The level of explicit export knowledge of an SME positively affects its international performance.

76 Management international / International Management / Gestión Internacional, 15 (1)

H7: The level of tacit export knowledge of an SME posi-tively affects its international performance.

contRoL VARIAbLes

Severalscholarssuggestthattranslatingmarketingknowl-edge intosuccessfulexportperformancedependsonfirmcharacteristics (Porter, 1980; Cavusgil and Zou, 1994).Thus, toassesstheimpactofentrymodesonthelevelofexportmarketknowledge,andultimatelytheimpactoftacitand explicit knowledge on international performance, wecontrolfortheimpactsoffirmsizeandpercentageoffor-eign sales.Various studies confirm thatfirmsize (BurtonandSchlegelmilch,1987;Calof,1994)andthepercentageofforeignsales(CavusgilandNevin,1981;CavusgilandZou,1994;Leonidouetal.,1998)aresalientdeterminantsoflevelsofforeignperformance.BothvariablesalsotendtoinfluencetheSME’scommitmenttoallocatingresources(e.g.,marketing,financial,personnel,production)toexport-ing.

InFigure1,wesummarizeourresearchhypotheses.

Research methodology

dAtA coLLectIon

Considering the causal nature of the research problem,weopted for aquantitativemethodological approachanddesigned our questionnaire on the basis of our review ofpriorliterature.Thepretestincludedexportmanagersof12smallexportingfirms;afterminoradjustments,weadmin-isteredthesurveyto624FrenchSMEsofthesteelindus-

try.Afteraphaseofdecline,theFrenchsteelindustryhasbecomeasignificantcontributortotheinternationalcom-petitiveness of the country’s manufacturing sector againandisthereforeaworthyobjectofanalysis.

WereliedontheDIANEdatabasetoextractcompanyinformation, such as location, number of employees, andindustrial sector. The population was limited to export-ingSMEsthatemployedbetween11and250people.Thedatacollectionspannedfourwaves,resultingin107usablequestionnairesandafinalresponserateof19.1%.

meAsuRes

Regardingthelengthofinternationalexperienceandvarietyofexportentrymodes,weadaptedscalesfromKuivalainenand Bell (2004). For the level of firms’ tacit knowledge,weadapted(afterapretest)thescaledevelopedbyRaman-galahy (2001). This scale consisted of seven groups ofmarketing competence related to (1) market informationmanagement, (2)communicationstrategy, (3)distributionstrategy,(4)pricestrategy,(5)productstrategy,(6)market-ingmanagementstrategy,and(7)networkingcompetence.Therefore,wemeasuredtacitknowledgeastheleveloffor-eignmarket-relatedcompetence;previous studies suggestthatforSMEmanagers,theterm“competence”issimilarin meaning to tacit knowledge (Mogos-Descotes, 2009).Thistargetpopulationalsodefines“information”similarlytothescholarlymeaningofexplicitknowledge.Therefore,we used Ramangalahy’s (2001) scale and measured theexplicit foreignmarket-related information inSMEswithregard to (1) thegeneral foreignmarketenvironment, (2)potentialclients,(3)competitors,(4)products,(5)priceand

FIGURE 1

Research hypotheses

The impact of entry modes on export knowledge resources and the international performance of SMEs 77

paymentpractices,(6)communication,and(7)distributionpractices.Finally,ourmeasureofSMEs’internationalper-formancewasadaptedfromZouetal.(1998),probablythemostwidelyusedmeasuretocapturethisconstruct.

Toassessfirmsize,weusedthenumberofemployeesofthefirm;thepercentageofforeignsaleswascalculatedas thepercentageof foreignsales from the total turnoverof the firm.We present these measures in more detail inAppendix1.

sAmpLe descRIptIon

The final sample contained 107 enterprises, whichemployedanaverageof86.38persons(standarddeviation[SD]=69.65;median=64;min=11,max=275).Onaver-age, exports accounted for40.49%of their total turnover(SD=26.19;median=35,00;min=1,max=97).Theirinternationalexperiencewasconsiderable,inthatthesam-ple companies have conducted international activities for24.04yearsonaverage(SD=15.66;median=21,00;min=1,max=79,00).Only6.7%ofthecompanieshadlessthanfiveyearsofexportexperience,andmorethanhalfofthem(51.90%) began exporting activities between 16 and 45yearsago,whereas15.7%startedmorethan46yearsago.

Onaverage,thecompaniesinterviewedused2.14entrymodesabroad(SD=1.04;median=2;mode=1;min=1,max=5).AswedocumentinTable1,mostcompaniesusedratherbasicforeignentrymodes,suchasdirect(97.17%)orindirect(60.37%)exporting,thoughalmostone-thirdalsoemployedcollaborativemodes,suchasstrategicalliancesor jointventures (26.66%),orownedasubsidiaryabroad(33.96%). Experience with Internet sales was sparse andrecent,andnoneofthecompanieshadundertakenforeignsalesthoughfranchisingorlicensing.

Byexaminingthenumberofyearsthecompaniesuseda specific entrymode,wedetermined that theyhadbeenusing direct exporting for longer than indirect exporting,followed by collaborative modes, subsidiaries, and othermodes.Accordingtotheseresults,companiesinthissam-pleprogressivelybegantoemploymoreelaborateforeignpresencemodesastheybecameaccustomedtodevelopingtheiroperationsinforeignmarkets.

TheaverageinternationalexperienceoftheSMEs-cal-culatedasthetotalnumberofyearsthatcompaniesspentindevelopingforeignactivities-was39.27years(SD=28.41years;median=30;min=4,max=129).

With regard to explicit export knowledge, clientsemerged as the most important source for SMEs (SD =1.12;mean=4.57;median=4;mode=4),whereascom-municationwasleastimportant(SD=1.36;mean=4.04;median=4;mode=4).The relative importanceofothertypesofexplicitexportknowledgewereasfollows:prod-ucts (SD = 1.27; mean = 4.63; median = 5; mode = 4),prices(SD=1.15;mean=4.32;median=4;mode=4),competitors(SD=1.13;mean=4.23;median=4;mode=4),generalmarketinformation(SD=1.22;mean=4.16;median=4;mode=4),anddistribution(SD=1.19;mean=4.15;median=4;mode=4).

Forthelevelsoftacitknowledge,SMEsinoursamplereported thehighest level of competence in their productstrategydevelopment(SD1.21;mean=4.75;median=5,mode = 5), followed by foreign networking (SD = 1.28;mean=4.70;median=5,mode=5),foreignpricingstrat-egy(SD=1.09;mean=4.40;median=4,mode=4),for-eignmarketsegmentation(SD=1.29;mean=4.29;median= 4, mode = 3), export information management (SD =1.21;mean=4.25;median=4,mode=4), internationalcommunicationstrategy(SD=1.28;mean=4.12;median= 4, mode = 4), international distribution strategy (SD =

TABLE 1

Foreign entry modes

Foreign entry modes analyzedFrequency of entry modes

Average number of years using the

entry mode

Standard deviation

Indirectexporting 97.17% 21.09 14.38

Directexporting 60.37% 8.46 13.07

Collaborativemodes(strategicalliance,jointventure,etc.) 26.66% 3.72 8.09

Franchising,licensing 0.00% - -

Foreignsubsidiary 33.96% 3.72 8.05

Internetsales 5.66% 0.29 1.25

Othermodes 7.54% 1.00 4.40

78 Management international / International Management / Gestión Internacional, 15 (1)

1.37;mean=4.06;median=4,mode=4),andfinallyinter-nationalmarketingmanagement(SD=1.40;mean=3.90;median=4,mode=4).

The two objective measures of international perfor-mance,evolutionofexportsalesprofitsandexportsalesvol-umeoverthepreviousthreeyears,camefromtheDIANEdatabase.Onaverage,exportsalesincreasedby19.20%inthepreviousthreeyears(SD=38.42;median=13.80;min=-44.76;max=209.86),andcompaniesregisteredanaver-ageincreaseof17.24%intheirexportsalesprofitsinthatperiod (SD=35.28;median=15.65;min= -37.65;max=168.86).Thesamplethusseemsgenerallycomposedofsuccessful companies, possibly more successful than theaverageFrenchSMEoperatinginthesteelindustry.None-theless,intermsoffirmsize,companiesinthesamplearesimilartothepopulationofthestudy.

psychometRIc pRopeRtIes oF the meAsuRes

Toassessthepsychometricpropertiesofthemeasures,weemployed partial least squares path modeling (PLSPM)rather than LISREL, because the related structural equa-tionmodelenabledustotesttheresearchmodelwhilealsoassessingthepropertiesofthemeasurementmodel.Inpar-ticular,PLSisadvantageousforsmallsamplesizesandintheinitialphaseoftheorybuilding(FornellandBookstein,1982).According to Fornell and Larcker (1981), PLS isalsomorerobustthanLISREL,inthatitdoesnotrequirenormallydistributeddata.

All measures are internally consistent (unidimension-ality and reliability). The three latent constructs - inter-national tacit and explicit knowledge and SMEs’ exportperformance-areunidimensionalconstructs(weextractedasingleeigenvaluegreaterthan1).Moreover,therespectivemanifestvariables(MV)allloadontheirlatentconstructs,asexpectedtheoretically,andthelowestloading(0.57,forperceived overall export performance) is above the criti-calacceptedvalueof0.5(FornellandLarcker,1981).Therhôcoefficientofallthreelatentconstructsalsoisgreaterthan0.7(FornellandLarcker,1981;FornellandBookstein,1982), in support of construct reliability (explicit knowl-edge=0.84;tacitknowledge=0.92;internationalperfor-mance=0.82).

We confirmed the discriminant validity of the con-structs; the lowest square root of the average varianceextracted associated with the three constructs was 0.52(explicitknowledge),whereasthehighestcorrelationcoef-ficientbetweenlatentconstructswas0.49(betweeninterna-tionaltacitandexplicitknowledge).

hypotheses tests

TotestH1–4,weusedPLSPM.However,becauseH5pos-itsarecursiveinfluencerelationshipbetweenSMEs’levels

ofexplicitandtacitknowledge,whichPLSPMcannotesti-mate, we used the scores estimated with PLSPM for thelatentvariablestocalculatethecorrelationbetweenthetwoconstructswithaPearsoncorrelationtest.

ForH6andH7,whichpredictpositiveimpactsoftacitand explicit knowledge about foreign markets on inter-national performance, we used two-stage least squaresregression analysis (2SLS) and thus extendedour regres-siontocovermodels thatviolateanordinaryleastsquare(OLS)regression’sassumptionofrecursivity,suchaswhenresearchersmustassumethatthedisturbancetermsofthepredictorsarenotindependent(Berry,1984).Becausetacitandexplicit knowledgeare interrelated, the2SLS regres-sionmethodispreferable,inthatitcanassesstheirimpactoninternationalperformance.The2SLSmethodtakestwosteps. First, on the basis of the correlated predictors, wecalculate the instrumentalvariablesby isolating thecom-monvarianceoftheinitialvariables.Second,weassesstheimpactoftheinstrumentalvariablesonthedependentvari-able(asinclassicalOLS).

InTable2,weoutlinetheresultsofthehypothesestests.Weconfirmthreeofourresearchhypotheses(H3,H5,andH6)atthe95%level.Twohypothesesareonlymarginallysignificant(H1andH4),andtworesearchhypotheses(H2andH6)donotreceivesupportfromtheresults.Wethere-fore assert that for the 107 exporting SMEs sampled forthisresearch:(1)financialexportperformancedependsonthe level of tacit export knowledge, (2) explicit and tacitknowledge are positively correlated, and (3) the numberofentrymodesusedbySMEsaffecttheirlevelofexplicitknowledge relative to exportmarkets.We alsofindweaksupport for thefollowingrelationships: (1) the longer theinternationalexperienceofSMEs,thehigheristheirlevelof explicit export knowledge and (2) the more differententrymodestheSMEsuse,thehigheristheirleveloftacitexportknowledge.The lengthof international experiencehas an insignificant effect on the level of explicit exportknowledgeofSMEs,andsurprisingly,thelevelofexplicitknowledgeofSMEshasnodirectimpactontheirinterna-tionalperformance.

TogainadditionalinsightsintotheroleplayedbyentrymodesforexplicitandtacitexportknowledgeinSMEs,weconducted twoanalysesofvariance (ANOVAs), inwhichwegroupedthecompaniesinthesampleintothreecatego-ries,accordingtothenumberofentrymodestheyhadused(1=1entrymode,2=2entrymodes,3=3ormoreentrymodes).TheWelchtestindicatedhomogeneousvariancesbetween the three groups for both international explicitknowledge (p < 0.05) and tacit knowledge (p < 0.001).Post-hoctests(Scheffetest)alsorevealedthatcompaniesingroups2(mean=4.54)and3(mean=4.69)werecharacter-izedbyasignificantlyhigherlevelofexplicitknowledge(p<0.05)thancompaniesthatusedasingleentrymode(mean=3.96).Wefoundnosignificantdifferenceintheexplicitknowledge level between companies using two versus

The impact of entry modes on export knowledge resources and the international performance of SMEs 79

three or more entry modes. Similarly, post-hoc (Scheffe)testsindicatedthatcompaniesthatusedthreeormoreentrymodes(mean=4.55)hadsignificantlyhigherlevelsoftacitknowledge(p<0.05) thancompaniesusingone(mean=3.75)ortwomodes(mean=4.12).

Thusitappearsthattwodifferententrymodesaresuffi-cienttobuildgreaterexplicitexportknowledge.Companiesthathaveexperiencedthreeormoredifferententrymodesalsoachievesignificantlyhigherlevelsoftacitknowledge.With just one exception, companies with experience in asingleentrymodehaveoptedforindirectexporting.Suchexperienceinforeignmarketsevidentlyisnotsufficienttobuildsignificantlevelsofexportknowledge.

Linearregressionanalysesprovidedadditionalinsightsintotheimpactofthedifferententrymodes(computedasdummyvariables)onthelevelsofexplicitandtacitknowl-edge.Becauseof the limitednumberof companiesusingspecific types of entry mode, we could test only for theimpactoftheuseofsubsidiaries,associativemodes(jointventuresandstrategicalliance),anddirectexporting,aswesummarizeinTables3and4.

The results in Table 3 clearly show that companiesusingsubsidiariesorassociativeentrymodeshavehigherexplicitknowledgelevels.Similarly,Table4indicatesthatcompanies using subsidiaries or associative entry modeshavehigherlevelsoftacitknowledge.

TABLE 2

Summary of research hypotheses findings

Hypotheses ValidationLevel of significance and standardized regression

coefficients

H1:Lengthofexportexperience→ explicitexportknowledge Weaksupport p<0.10,β=0.09

H2:Lengthofexportexperience→tacitexportknowledge No n.s.

H3:Numberofentrymodes→explicitexportknowledge Yes p<0.05,β=0.17

H4:Numberofentrymodes→tacitexportknowledge Weaksupport p<0.10,β=0.08

H5:Explicitexportknowledge↔tacitexportknowledge Yes p<0.001,β’=0.71

H6:Explicitexportknowledge→internationalperformance No n.s.

H7:Tacitexportknowledge→internationalperformance Yes p<0.001,β’=0.57

Notes:→=positiveimpact,↔=positivecorrelation,β=standardizedregressioncoefficient,β’=standardizedcorrelationcoefficient;n.s.=notsignificant

TABLE 3

Multiple stepwise regressions: Explicit international knowledge

Independent variables

Dependent variable: Explicit international knowledge

β coefficientVariable t-statistic

(p values)

Subsidiary 0.36 p <0.001(4.97)

Associativemodes 0.49 p <0.001(3.86)

Directexporting 0.06 0.1(0.50)

R2=0.34;R2adj.=0.33

F=27.50;p<0.001

80 Management international / International Management / Gestión Internacional, 15 (1)

Discussion

Thisstudyexplorestheroleofentrymodesinbuildingfor-eignmarket-relatedknowledgeandultimatelyintheinter-nationalperformanceofSMEs.Entrymodesareformsofinternationalexperienceandbasicmechanismsofenteringforeign markets, which means they support the acquisi-tion and consolidation of SMEs’ foreign experience. WefocusedontwodimensionsofSMEs’entrymodesforthisanalysis:thelengthandvarietyoftheirinternationalexperi-ences.ThelengthofexportexperiencecorrespondstothenumberofyearsaSMEhasbeenoperatingabroadwithdif-ferententrymodes.Tooperationalizethevarietyofexportexperience,weusedthenumberofentrymodesSMEshaveadoptedintheirinternationaldevelopment.

Entrymodesplayanimportantroleinfosteringorrein-forcingthelevelofexplicitforeignmarketknowledgepos-sessedbySMEs.Buildingexportknowledgeseemsmoreaquestionofthevarietyofentrymodesthanthedurationof foreign operations. The greater the number of entrymodes,themoreoursampleSMEsconsolidatetheirlevelofexplicitknowledgerelativetoforeignmarkets(i.e.,gen-eralbackgroundinformation,potentialclients,competition,products,priceandpaymentpractices,communication,anddistribution).WhenSMEsuse twoormore entrymodes,they demonstrate significantly higher explicit knowledgelevelsthandothosethatuseasingleentrymode.Ifwecon-trol for the impactoffirmsizeandpercentageof foreignsales,onlythelattervariablehasaweakimpactonexplicitknowledgestocks.Thisfindingsuggests thatsmallSMEscanachievelevelsofexplicitknowledgeaboutforeignmar-ketsthatarecomparabletothelevelsthatbigfirmsobtain.Some entry modes, especially associative modes and thecreationofsubsidiaries,appearparticularlyeffectivefortheconsolidationofexplicitexportknowledgeinSMEs.Stron-gerlocalintegrationabroadmaythusbeaneffectivewaytobuildexplicit foreignmarketknowledge,possiblyby tak-ingadvantageofthemarketknowledgeandexperiencesof

localworkers.Indirectexportingalonegenerallyisnotsuf-ficienttobuildsignificantlevelsofexportknowledge.

Ithasbeenpostulated thatentrymodesalsoreinforcethelevelsoftacitforeignmarketknowledgethatcharacter-izeSMEs.Butthoughthenumberofentrymodesusedbyacompanyhasaweakimpactontacitexportknowledge,theimpactofthelengthoftheinternationalexperienceontacitknowledgeisnotsignificant.Theseresultssuggestthatinamodernbusinesscontext,buildingtacitknowledgeaboutexportmanagementdoesnotdependmainlyonhowlongacompanyhasbeenoperatingabroad.Rather,thevarietyofexperiencesseemrelativelymorebeneficialforreinforcingknowledgelevels.TheUppsalaviewofSMEs’internation-alization as a progressiveprocess (Johanson andWieder-sheim-Paul, 1975; Johanson andVahlne, 1977), in whichfirmsbuildforeignmarket-relatedknowledgeastheygainexperiencewithforeignsettings,thusdoesnotholdentirelytrueforthecompaniesinoursample.Becausethevarietyof experience appears more important than duration, ourresearchprovidesonlypartial support for thepropositionoftheUppsalamodelthatfirmsresorttoinertialandreac-tivechoicesofentrymodeswhentheybecomemorefamil-iarwithforeignmarkets.WealsofindevidencethatSMEsmakeproactivestrategicdecisionstoemployseveralentrymodessimultaneouslyintheearlyphasesoftheirinterna-tionalizationprocess, reinforce theirknowledge resourcesbase,andattaingreaterinternationalperformance.

Overall,tacitknowledgeisadirectfunctionofthevari-etyoftheentrymodesexperiencedtoonlyasmalldegree.Yet in our sample, SMEs with experience with three ormoredifferententrymodesexhibitsignificantlyhigherlev-elsof tacitknowledgeaboutexportmarkets.Asobservedforexplicitknowledge,associativeentrymodesandsubsid-iariesaremostbeneficialwithregardtoincreasinglevelsoftacitknowledge.Throughnetworking(e.g.,building jointventures)andtheirstrongcommitmenttoforeignmarkets(e.g., establishing subsidiaries), firms can gain access to

TABLE 4

Multiple stepwise regressions: Tacit international knowledge variable

Independent variables Dependent variable: Tacit international knowledge

β coefficientVariable t-statistic

(p values)

Subsidiary 0.28 p <0.001(3.47)

Associativemodes 0.35 p <0.001(2.48)

Directexporting 0.14 0.29(1.50)

R2=0.22;R2adj.=0.20

F=16.76;p<0.001

The impact of entry modes on export knowledge resources and the international performance of SMEs 81

other firms’ knowledge, probably without going throughtheexperiencessuggestedbyEriksson etal. (1997).Net-worksexposefirmstonewopportunities,helpthemobtainknowledge,andgivethemameanstolearnfromtheexperi-encesofothers(WelchandWelch,1996;ChettyandBlan-kenburg,2000).Theinsignificantimpactofthedurationofexport experience reinforces Forsgren’s (2002) argumentthattheUppsalamodelrepresentsonlyanarrowinterpre-tation of learning. In the past two decades, research hasshownthatfirmscanlearninotherways,includingimita-tivelearningbyobservingotherfirms,hiringpeoplewiththe necessary knowledge, licensing, strategic alliances,companyacquisitions,orfocusedmarketresearchactivities(WelchandWelch,1996,Forsgren,2002).

As we expected, explicit and tacit foreign market arestrongly and positively correlated. Knowledge creationseems to result from the interaction of tacit and explicitknowledge,whichyieldandreinforceeachother(Nonaka,1994;Hedlund,1994;Spender,1998).Throughthemecha-nismsofsocialintegrationandimplementationintofirms’actions,SMEsseem toencodeor transform theirexplicitinto tacit knowledge (Nonaka et al., 2000; Autio et al.,2000).Thelevelsoftacitknowledgemighthelpenterprisesmake senseof thenewlyacquiredexplicitknowledge, assuggestedbyCohenandLevinthal(1990).

Furthermore,tacit,idiosyncraticSMEs’foreignmarket-related knowledge may become a key strategic asset andsourceofperformance, thoughexplicit exportknowledgehas no significant impact on international performance.However,theKBVnotesthatindynamic,turbulentenviron-ments, the contribution of knowledge-based assets, espe-ciallytacitones,isparticularlykeytoperformance(Grant,1996;MillerandShamsie,1996;DeNisietal.,2003;Patri-otta,2004;Spender,2007).OurresultsfurthersuggestthatSMEs’ international tacit knowledge levels have positiveandsignificantimpactsonthedegreeofinternationalper-formance, in line with previous studies of manufacturingSMEs’internationalizationprocesses(e.g.,HolzmüllerandKasper1991;Axinnetal.,1996;CavusgilandZou,1994;Ramangalahy,2001;JulienandRamangalahy,2003).

Firmsizeandpercentageof foreignsalesdonotplaydeterminant roles for levels of internationalperformance.This result is not particularly surprising, in that priorresearchhasofferedmixedevidenceonthesepoints(Zouetal.,2003).

Conclusion, limitations, and extensions

Ourresearchoffersabetterunderstandingofhowinterna-tionalizationprocesses lead to thedevelopmentof exportknowledgeand influence internationalperformance.Boththe variety and the length of international experiencestendtoincreasethelevelofexplicitforeignmarket-relatedknowledgeinSMEs.Theimpactofentrymodesontacitfor-eignmarket-relatedknowledgeismostlyindirect,through

the reinforcement of explicit knowledge. In turn, ourresearchhasimplicationsformanagers,publicpolicymak-ers,andacademics.Managersshouldrealizethatusingsev-eralentrymodessimultaneouslybuildsknowledgestocksmore quickly in the company and narrows the gap withcompaniesthatenjoylongerinternationalexperience.Theuse of subsidiaries, strategic alliances, and joint venturesimplyastrongerinvolvementwithlocalpartnersandhelpSMEsgainhigherlevelsofknowledge-basedinternationalresources thandomorebasicentrymodes.Thus,compa-nies that are already operating abroad but feel they lackforeign market knowledge should reconsider their entrymodes.Pursuingadditionalmodescouldbeamoreeffec-tivewaytoincreasetheirinternationalexperienceandper-formancethanincrementallearningwithauniquepartnerinasteadyorganizationalsetting.Companiesjustinitiatingtheirinternationalsalesshouldtakecareintheirchoiceofentrymodeandconsidernotonlytraditionalcriteria,suchascost,control,andcommitment,butalsothevarietyandlengthofuseofthevariousentrymodes.Stayinginformedabout foreign markets (explicit export knowledge) alsoincreasesthelevelofforeignmarkettacitknowledge,andviceversa.Ultimatelythough,onlytacitknowledgedrivesSMEsinternationalperformance.Finally,firmsizehasnoinfluenceoneitherknowledge-basedresourcesorinterna-tional performance, so smallfirms shouldnot accept anyexclusions from these processes, nor are they systemati-callyhandicapped in theirefforts toattainstrong interna-tionalperformance.

For policymakers, our results suggest they shouldencourage small firms to use associative foreign entrymodes and establish subsidiaries in foreign markets.Aidprogramscouldbeorientedtowardsupportingsuchbehav-ior,suchaswithadditionalopportunitiesandincentivestopartnerwithforeigncompanies,createjointventures,andpossiblyeventoestablishforeignsubsidiaries.

Onthetheoreticalfront,theimpactofentrymodesonthelevelsoftacitinternationalknowledgeofSMEsisratherindirect. The variety of entry modes seems more impor-tant than the length of international experiences. Thus,the progressive internationalization process described inthe Uppsala model (Johanson and Vahlne, 1977), whichemphasizes experiential market knowledge acquisition,doesnotfittheinternationalizationconfigurationofcompa-niesinoursample.Thelengthoftheirinternationalexperi-encedoesnotcontributetoreinforcementsofthelevelsofSMEs’ tacit knowledgeon exportmarkets. Usingdiverseentrymodes,theyaremorelikelytobuildbothexplicitandsometacitknowledgeaboutforeignmarkets.ThevarietyofentrymodesreinforcesSMEs’foreignmarket-relatedlevelsoftacitknowledge.

AmoreentrepreneurialapproachtoSMEs’internation-alization,suchastheKBVofthefirm,thusseemsmoresuit-abletocapturethedynamicsrelatedtoknowledgeresourcedevelopment(KuivalainenandBell,2004).Moreover,our

82 Management international / International Management / Gestión Internacional, 15 (1)

resultsreinforcetheassumptionsoftheKBVregardingthepositionaladvantageofSMEsintermsofthetacitknowl-edgeresourcesforbusinessperformance(e.g.Grant,1996;KuivalainenandBell,2004).

Finally,thisstudysuffersbyseverallimitations,includ-ing sample size and representation,mostobviously.Withourlimitednumberofrespondents,wecouldnottestfortheimpactof“intermediate”entrymodes,suchaslicensingorfranchising.Bytakingasingleindustryinasinglecountryunderscrutiny,wecannotoffersupportforanygeneraliza-tion of our results beyond the French steel industry.Therespondingcompaniesalsoappearedmoresuccessfulthanthe average French SME operating in the steel industry,whichpointstoapossiblenonresponsebias.Furthermore,we concentrated exclusively on the role played by entrymodes to reinforce knowledge levels. Other well-knowninternalfactors,suchastheefficiencyofcoordination(e.g.,communication, shared vision, efficiency of the transferand integration of knowledge) also should contribute tothecreationofknowledgeresourcesandmayinteractwiththevariableswehaveanalyzed.Access toforeignmarketknowledgeoutsidethefirm,aswellasthecompetitiveenvi-ronment inbothdomesticandforeignmarkets,shouldbeincludedinfurtherinvestigationsaswell.Somemeasuresweused,suchasthedifferentknowledge-relatedconstructs,representyetanother limitation.Thepretestsrevealed theneed for considerable adaptationsof the initialmeasures,to ensure respondentsunderstood thequestions.Prior lit-erature does not abound with measures of knowledge-related constructs, and existing measures have promptedheavycriticismsforfailingtocapturethecomplexnatureofknowledge-basedresourcesfully(KuivalainenandBell,2004).Weoffersimilarwarningsregardingexistingmea-suresofentrymodes.Forthisstudy,weonlyassessedthelengthandvarietyofentrymodes; itwouldbehelpful toincludeotherscales that includefurtherdimensions,suchasperceivedusefulnessoreaseof implementationofdif-ferententrymodes.Evenwiththeselimitationsthough,thisstudy provides deeper insights into the way entry modesinfluenceinternationalknowledgeresourcesandultimatelyinternationalperformance.

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The impact of entry modes on export knowledge resources and the international performance of SMEs 85

APPENDIx 1

Operationalization of the research variables (1/2)

Variable/Construct Items and scales References

Lengthoftheinternationalexperience

Sumofthenumberofyearsofexperiencewithusingoneofthefollowingmodesofforeignpresence:

• directexporting

• indirectexporting

• associativemodes

• franchisingorlicensing

• subsidiary

• Internet

• Others

AdaptedfromKuivalainenandBell(2004)

Varietyoftheinternationalexperience

Numberofdifferententrymodesused AdaptedfromKuivalainenandBell(2004)

Explicitexportknowledge

Please indicate to which extent are you informed, compared to your maincompetitors on export markets, regarding the following elements on yourexport markets (items are measured on a 7-point scale ranging from -3 =“informedmuchlessthanthecompetitors”to+3=“informedmuchmorethancompetitors”):

•General foreign market situation (economic, social, political environment, barrierstoexporting,legislation)

•Foreignclientsandcompetitors(characteristics,needs,demand,preferences, mentalities,buyingbehavior,newniches,potentialpartners)

•Competitors (main actors on the market, general situation, strategies they deploy,forcesandstrengths)

•Products (characteristics, technical norms, adaptation needs, packaging, innovationcycles)

•Prices and payment methods (level, tendencies, margins and commissions, creditpolicies,modeanddelayofpayment)

•Communication(availablemedia,methodsemployed,typeofmessage,costs)

•Distributionpractices (channels, costs, sellingpoints, transport anddeposit infrastructure,paymentdelays,intermediariesefficiency)

AdaptedfromRamangalahy(2001)

86 Management international / International Management / Gestión Internacional, 15 (1)

APPENDIx 1

Operationalization of the research variables (2/2)

Tacitexportknowledge

Pleaseindicatetowhichextentyourenterpriseownsinternationalcompetenciescomparedtoyourmaincompetitorsonexportmarketsinthefieldslistedherebellow (items are measured on a 7-point-differential scale ranging from 1 =“muchlessthancompetitors”to7=“muchmorethancompetitors”):

•Networking (e.g.: identifying contacts abroad, entertaining developing relationships with the contacts abroad, knowledge and understanding of businesspractices,foreignlanguagesskills)

•International marketing management (e.g.: setting marketing goals, formulatingcreativemarketingstrategies,translatingmarketingstrategiesinto action,controlandevaluationofmarketingcosts)

•Foreign markets segmentation (e.g. : opportunity seeking, studying foreign markets characteristics, targeting and penetrating foreign markets, identificationpotentialclients/markets)

•Productstrategy(e.g.:R&Dofnewproducts/services,productsandservice adaptation,packaging,launchingsuccessfullynewproducts/services)

•Pricestrategy(e.g.:negotiatingandfixingthepriceandthepaymentdelays, responsiveness in terms of pricing to market change, fixing the margins, evaluationofthecreditrisks)

•Communication strategy (e.g.: promoting sales, products, developing enterpriseimageandreputation,managingcommunicationprograms)

•Distributionstrategy(e.g.:selectingthedistributoragentsandthesaleforce, entertainingtherelations/collaborationwithdistributoragents,choosingthe localizationoftheselling/distributionpoints,trainingsellingpersonnel)

•Information management (e.g. : identification of information sources, collectinginformationonclientsandcompetitors,trackingcustomerswants andneeds,collectingandanalyzingmarketinformation)

AdaptedfromRamangalahy(2001)

Exportperformance ExportsalesgrowthoverthelastthreeyearsExportprofitsgrowthoverthelastthreeyearsOverallperceivedexportperformance

AdaptedfromSouchonandDurden(2002),Zouetal.(1998)

Exportpercentage Exportsalesinrelationtototalturnover

Firmsize Numberofemployees