The internationalisation of service-sector SMEs in an emerging market: Insights from business training and consultancy firms in Malaysia

Shir May Ooi (School of International Studies, Universiti Utara Malaysia, Sintok, Malaysia)
Christopher Richardson (Graduate School of Business, Universiti Sains Malaysia, Pulau Pinang, Malaysia)

Review of International Business and Strategy

ISSN: 2059-6014

Article publication date: 7 March 2019

Issue publication date: 7 March 2019

Abstract

Purpose

This paper aims to explore the internationalisation of service-sector small- and medium-sized enterprises (SMEs) from an emerging market, focussing on the entry modes, psychic distance, business network, internationalisation challenges and capabilities of business training and consultancy firms from Malaysia.

Design/methodology/approach

A multiple-case study approach is adopted, and 31 in-depth interviews were conducted with the top management and executives from eight business training and consultation (BT&C) firms in Malaysia. The Uppsala model is used for theoretical guidance to analyse the internationalisation of the firms.

Findings

The results suggest that psychic distance, business network and business capabilities influence the internationalisation of BT&C firms from Malaysia. However, the discussion of entry modes in the framework of service internationalisation does not accurately explain the internationalisation of the studied firms.

Research limitations/implications

This study is a qualitative research based on the experiences of eight firms. The basis of this study is inadequate for scientific generalisation. Quantitative research should be conducted in the future to provide a statistical test and empirical results. This study is concerned with the emerging-market context. The study could be expanded to include more industries and other emerging markets in the future.

Practical implications

This study explored the application of internationalisation theories to the BT&C industry in an emerging market, with particular emphasis on firms’ entry modes, psychic distance, business networks, international challenges and capabilities. This study also highlighted some of the key internationalisation challenges facing emerging market small- and medium-sized enterprises (EMSMEs), underlining the importance of business networks and capabilities.

Social implications

Nevertheless, this study shares useful and practical discoveries concerning the internationalisation process of BT&C firms from the emerging market, focussing on entry modes, psychic distance, business network, the challenges faced and the required capabilities.

Originality/value

The study provides new insights into service internationalisation in SMEs from an emerging market. The application of internationalisation theories to the BT&C industry in an emerging market is analysed.

Keywords

Citation

Ooi, S.M. and Richardson, C. (2018), "The internationalisation of service-sector SMEs in an emerging market: Insights from business training and consultancy firms in Malaysia", Review of International Business and Strategy, Vol. 29 No. 1, pp. 44-60. https://doi.org/10.1108/RIBS-02-2018-0023

Publisher

:

Emerald Publishing Limited

Copyright © 2019, Emerald Publishing Limited


1. Introduction

Rapid advances in information and communication technologies (ICT) and the lowering of trade barriers have opened the doors to more and more emerging market small- and medium-sized enterprises (EMSMEs) to join their larger counterparts on the international stage (Nath and Liu, 2017; Knezović et al., 2017). Foreign market entry is increasingly vital for SMEs because of their increased exposure to domestic and foreign competition (Sui and Baum, 2014). Therefore, SMEs have to ensure that their foreign expansion is planned and conducted carefully (Agarwal and Ramaswami, 1992). Scholars agree that choosing the most suitable modes of entry into different countries is one of the most relevant strategy decisions that a company must make during its internationalisation process (Agarwal and Ramaswami, 1992; Anderson and Gatignon, 1986; Kruesi et al., 2018). Sequential incremental patterns of internationalisation (business expansion from low to high psychic distance countries) may not be the optimum resource allocation in the host countries (Forsgren, 2002; Hennart and Slangen, 2015; Yamin and Sinkovics, 2006). Adjustment to the changing conditions in different countries is needed, following a critical review and evaluation of the ways to enter and exploit foreign markets, especially when the internationalisation is from an emerging market (Pattnaik and Kumar, 2014; Buckley and Casson, 2009; Knight and Cavusgil, 2004).

The existing literature on Malaysian SMEs has emphasised various challenges facing SMEs in a globalised environment. SMEs in Malaysia are having difficulty surviving during the recession. Low productivity, lack of access to credit, limited business networks and inadequate managerial capabilities and company resources have formed a barrier to global sourcing for SMEs. Furthermore, SMEs are dealing with intensified global challenges (Hassan and Sulaiman, 2016; Ghazilla et al., 2015; Surin et al., 2015). SMEs in Malaysia are also facing problems in accessing advanced skills and technology, as well as a heavy regulatory burden (Zulkifli-Muhammad et al., 2009; Hashim, 2012; Dangi et al., 2017; Richardson, 2014). Recent research has suggested that EMSMEs adopt quite unique strategies to compete and excel in international business (IB) (Pattnaik and Elango, 2009; Pattnaik and Kumar, 2014). These stem from their competitive advantages, which include small-scale manufacturing for niche markets, religion and cultural sensitivity, access to an abundance of natural resources, comparatively low labour costs and attractive government support that form competitive advantage for EMSMEs (Knight and Cavusgil, 2004; Pattnaik and Elango, 2009; Richardson, 2014). However, this stream of research is still in its infancy and, as the IB domain continues to evolve, there is a need to understand more about the internationalisation of EMSMEs (Hipsher, 2006; Thai and Chong, 2008; Kuivalainen et al., 2012; Richardson and Rammal, 2018).

In Malaysia, business training and consultancy (BT&C) is categorised as a business service in the service sector. Business services are the second-largest industry in the service sector, contributing RM 23bn in service exports in 2014 (MITI, 2015). Qualitative research assists in studying this new and fast-growing industry to understand the difference in its business operation and internationalisation decisions with strategies adopted. In line with this, the present study explores the internationalisation of eight EMSMEs that are operating in Malaysia. Our aim is to examine these firms’ entry modes, psychic distance and business network, as well as the challenges and capabilities as they internationalise their business. In doing so, we provide important insights into the accelerated nature of EMSME internationalisation, thus bringing into focus the continued accuracy and relevance of dominant internationalisation theories. The study also highlights the contextual idiosyncrasies of emerging market settings and internationalisation challenges that are specific to service-sector EMSMEs. Capabilities that form a competitive advantage for EMSMEs to compete with other advanced nations are examined in this study. The study seeks to address the following questions:

Q1.

What are the key features of internationalisation of service-sector SMEs from emerging markets?

Q2.

What are the challenges that these firms face in the internationalisation process?

The remainder of this paper comprises four sections, beginning with a review of the extant literature on firm internationalisation and EMSMEs. We then describe the study’s methodology before presenting the key findings and the discussion section to explore the significance and meanings of these findings. In the final section, we provide concluding remarks and highlight important practical implications emerging from the study.

2. Literature review

2.1 Service-sector emerging market small- and medium-sized enterprises

In the 1980s, World Bank Economist Antonio van Agtmael introduced the concept of “emerging market” to add to the existing classification of countries as being “developed”, “developing” or “less developed” (Schumpeter, 1939; Agtmael, 2007). According to Vercueil (2012), emerging markets are those experiencing rapid economic growth, coupled with economic and political reforms. These countries are restructuring their economies along market-oriented trends, with stable currencies and transparent markets as part of efforts to build investor interest (Bennett and Smith, 2004; Schwartz and Bar-El, 2004). Emerging markets are experiencing growth in local and foreign investment (Schwartz and Bar-El, 2004). As countries “emerge”, however, the challenges of resource scarcity become more apparent. These challenges include underdeveloped capital markets, incomplete local infrastructure, lack of skilled labour, inadequate law protection and enforcement and environmental and ethical issues (Deakins and Freel, 1999).

The differences between the manufacturing and service industries are substantial. Unlike tangible goods, services are impossible to store. The production and consumption of services occur simultaneously (Roura, 2010). Service characteristics make service internationalisation more complicated and riskier than manufactured goods’ internationalisation. In addition to scarce financial, human, tangible and intangible resources, EMSMEs face challenges to respond to each individual market’s unique conditions (McDougall et al., 1994; Zhou et al., 2007). Internationalising service companies also confront certain non-legal barriers, such as language differences and a lack of information on businesses, business practice and culture in host countries. More time and higher costs are involved in service companies’ internationalisation to other countries (Javalgi and Martin, 2007; Meyer et al., 2015; Hashim, 2012). Besides, some countries set laws and regulations to prevent or hinder services rendered by foreign producers to protect their local service producers (Roura, 2010). Innovation, knowledge and capabilities are all essential to IB prowess (Braga et al., 2017; Knight and Cavusgil, 2004).

2.2 Internationalisation of emerging market small- and medium-sized enterprises

Globalisation and the advancement of ICTs, service methods and international logistics have created an opportunity for service-sector EMSMEs to participate in IB (Todd and Javalgi, 2007; Bell et al., 2001; Knight and Cavusgil, 2004). Export of services in Malaysia increased by 7.5 per cent compared to the preceding year, which posted RM 146.3bn (DOSM, 2017). Service internationalisation became intensive in IB as long ago as the 1980s. In 2017, services accounted for 65.1 per cent of the world output. The world total GDP in 2017 was US$80.68tn (WorldBank, 2018). Service companies produce or provide services to increase their exchange with foreign counterparts, with the aim of being present and gaining market share in other countries (Radulovich et al., 2018; Desyllas et al., 2017).

BT&C firms from emerging markets (EMBT&Cs) are the targeted firms studied in this research. The BT&C industry has grown at an average compound annual growth rate of 4.1 per cent since 2011 to a value of US$251bn in 2016 (Consultancy.uk, 2017). BT&C firms provide management training, advice consulting and assistance to clients. Their business is an innovator, bringing new knowledge, management ideas and practices to an organisation (Sturdy et al., 2009). The past few years have seen rapid growth in the number of business-training programmes, especially in emerging countries, but rigorous evidence on the effectiveness of these training programmes is minimal (De Mel et al., 2014; Kipping, 2002; O’Mahoney and Markham, 2013). The issues and problems that BT&C firms encounter include mismatching of consulting and training services, the inability to execute the consulting plan, high fees and expenses, the sustainability of consulting or training results and ethical issues (Argyris, 2000; Bennett and Smith, 2004; Kipping, 2002; O’Mahoney and Markham, 2013). These issues are subject to further research to respond to the industry problems and to grow the industry (Craig, 2006; Hari, 2011; O’Mahoney and Markham, 2013).

2.3 Uppsala model

Firms are widely assumed to internationalise through a process of sequential learning and incremental decision-making. The knowledge and information acquired during the initial internationalisation experience is thus used as a guide for subsequent internationalisation (Johanson and Vahlne, 1977; Knight and Cavusgil, 2004; Whitelock, 2002). Over time, as firms progressively increase their knowledge of IB, their commitment to and involvement in foreign markets expand in a series of stages. The literature distinguishes internationalising firms into five different stages according to their degree of involvement and the volume of resources committed: export, licencing, franchising, joint ventures (partnerships) and wholly owned subsidiary (Anderson and Gatignon, 1986; Agarwal and Ramaswami, 1992). This view of internationalisation holds that the major obstacle to firm internationalisation is a lack of knowledge and psychic distance. The countries are psychically close to one another if they share similar levels of development in terms of population, GDP per capita, social literacy rate, trade figure, geographical distance or political system (Håkanson et al., 2016; Ojala, 2015). Psychic distance and the size of the potential market play a major role in influencing a firm’s decision about the extension of its activities to a new market (Kujala and Törnroos, 2018).

Johanson and Vahlne (2009) revised the Uppsala model to acknowledge the importance of business networks in firms’ internationalisation. According to the authors, internationalisation is the development of networks of business relationships in other countries through extension, penetration and integration (Johanson and Vahlne, 2009). The current network position of the firm is important in achieving international success, and the concept of network positioning is considered more significant than market commitment during firm internationalisation. Internationalising firms thus have to develop a robust position within, and solid commitments to, their business networks to gain opportunities and access to required knowledge (Johanson and Vahlne, 2009; Kujala and Törnroos, 2018) (Figure 1).

However, existing conceptualisations of firm internationalisation are disproportionately based on the insights drawn from large, experienced firms with mass manufacturing production or mass customisation (Johanson and Vahlne, 1977; Forsgren, 2002; Axinn and Matthyssens, 2002; Javalgi and Martin, 2007). When Johanson studied the steel industry in 1966, he concluded that theories did not accurately explain the actual practice in the steel industry. When the internationalisation model was developed, it disregarded the decision-making style of the chief decision-maker (Johanson and Wiedersheim‐Paul, 1975; Ratten et al., 2017). In more recent times, we have witnessed the internationalisation of the service industry, including in emerging markets. The differences between the manufacturing and service industries are substantial and include the industries’ very nature, as well as the operational issues they encounter (Skudiene et al., 2015). In light of this, there have been calls by a number of IB researchers for more inquiry into the phenomenon of service-sector firm internationalisation in emerging markets (Javalgi and Martin, 2007; Ghauri et al., 2014; Wood, 2003; Coudounaris, 2018).

3. Research methodology

We adopted a qualitative approach, using multiple case studies, to generate an in-depth analysis of the entry modes, psychic distance, business network, challenges and capabilities of the participating firms to provide new insights. The use of a multiple-case study allows multiple experiments or interviews to be conducted with different companies to follow a replication design (Yin, 2008). A multiple-case study enables the findings that derive from each case in the research to be compared and contrasted. It analyses the common or unique issues among the cases and then promotes theoretical reflection on the findings. The cross-comparison will identify cross-case patterns and then strengthen the conclusion drawn from each case (Miles et al., 2014).

The company selection in this research is based on several criteria that comply with the research objective and the research questions. The firms must be registered with the Companies Commission of Malaysia. As the research question concerns understanding the internationalisation decision of firms, the selected firms must be actively involved in overseas business. In qualitative research, the sample size is usually very small, as this phenomenon only needs to appear once for the analytical process. Afterwards, the sample size does not contribute a new phenomenon or evidence, which is referred to as data saturation (Ritchie et al., 2003). Mason (2010) conducted research on the qualitative research sample size for PhD studies in which the result showed that the mean sample size necessary to achieve data saturation was 31. Thus, 31 interviewees from eight BT&C firms in Malaysia were involved in this research. Eight companies and three government agencies (Matrade, SMECorp, and MITI*) participated in this research, with three respondents interviewed from each company to contribute a total of 31 interviews. The only exceptions were Company D and Matrade, with only two respondents participating, because the small size of Company D and Matrade only allowed two persons from the organisations for interview. We adopted chain sampling, which involves using well-informed people to identify critical cases of informants who have knowledge of a phenomenon (Creswell, 2013). More precisely, six companies were recommended by SME Corporation Malaysia’s (SMECorp) director in northern Malaysia, based on the SMECorp directory, with the other two companies being introduced by executives from Companies A and B. SMECorp is a dedicated agency that was appointed by the Malaysia National SME Development Council to propel the development of SMEs in Malaysia (SMECORP, 2015).

Data were collected mainly through face-to-face interviews with senior executives of each firm, including founders, top managers and associate trainers. The interviews were digitally recorded, transcribed and sent to each interviewee for review and confirmation. In addition to interviews, secondary data were also consulted for identification, triangulation and analysis purposes (Yin, 2008; Ghauri et al., 2014). The major sources for secondary data were company websites, company reports, company brochures and online resources.

All data were imported into the Nvivo software to perform single- and cross-case analysis. In single-case analysis, enormous volumes and sources of data are included in a detailed case study write-up that allows the discovery of unique patterns of each case (Yin, 2008; Eisenhardt, 1989). The individual interview transcription was coded to label the data for further analysis (Ghauri and Firth, 2009; Yin, 2008). The data were then sorted into different categories in accordance with the themes that emerged from analysis, namely, entry modes, psychic distance, business networks, internationalisation challenges and capabilities (Griffith et al., 2008). The next stage of analysis involved analysing patterns across the companies to find similarities, differences and patterns (Baxter and Jack, 2008; Eisenhardt, 1989; Ghauri and Firth, 2009).

Multiple sources of evidence and chains of evidence were established, thus strengthening construct validity. These included interviews, company websites, reports, brochures, presentation videos and online resources. The systematic explicit links among the interview questions asked, the data collected and the conclusions drawn form a chain of evidence to ensure the correctness of the study. The inclusion of multiple cases, rather than just a single case, also increases the trustworthiness. The same research protocol was repeated in all the interviews, thus enhancing robustness and providing more compelling evidence.

4. Findings and discussion

4.1 Entry modes

Based on the findings of this study, Companies B, D, E, F and G service travel to host markets to perform their business. “I travel to these countries to conduct training,” states Company B. “We don’t have office in overseas. I personally go to conduct the sessions with them,” comments Company D. Company E sends staff members to foreign markets where they do not have a branch: “For countries where we do not have a branch, such as India, we travel to the place to conduct training and consultancy by event basis.” “Like the training in overseas, I fly back to Malaysia after the training,” states Company F. Company G reveals, “I travelled to Thailand and Japan to set up a freelance project for myself.”

Besides service travel, certain BT&Cs in this study adopt outsourcing as their entry modes. Companies C and H outsource their IB to agencies in the host market. “Sometimes, we recruit locals in the host market who run the event instead of us flying over there,” states Company C. “We engaged contractors. We looked for expert in that area and then engaged with them,” Company H explains.

Partnership is the alternative entry mode for BT&Cs that requires greater control and business expansion in terms of their internationalisation. Companies A and E adopt partnerships in their foreign-business expansion. “All our partners overseas are inactive except Manila,” comments Company A. Company E also mentions, “The expansion in Thailand and Taiwan takes the form of partnerships with local firms in host countries.” Companies A, B, C, E, G and H have opened wholly owned branches in their host markets. “In Bangkok, we set up an office and offer an MBA programme. After Bangkok, we opened offices in Manila and then Vietnam,” Company A comments. “In the year 2000 we set up a new company in Vietnam. We bought a consultancy company in Vietnam,” Company B explains. Company C also stresses, “Our market entry has centred on the establishment of sales offices in the host countries.” Company E adds, “We are opening our office in Jakarta and plan to hire two staffs in charge of sales.” “We have branches in Singapore and Thailand,” answer Company G and H, respectively.

The findings in this study indicate that current entry modes do not accurately describe the internationalisation of the firms in the study. The BT&C firms in this study initiate their internationalisation mainly via service travel, outsourcing, partnerships with local agencies in the host country and wholly owned branches to host countries on an event basis. Generally, traditional or long-established firms adopt wholly owned branches or partnerships as their preferred entry modes into foreign markets. However, the firms in this study that choose wholly owned branches later face a challenging operating environment, especially in terms of costs and staffing issues. New firms prefer service travel to foreign markets by flights and outsourcing. Service travel has been claimed by respondents in this study to be a more cost-saving and effective entry mode for the BT&C industry.

4.2 Psychic distance

Table I displays an analysis of the countries in terms of their psychic distance in accordance with the population, GDP per capita, social literacy rate, trade figure (export figure) and political system. The results show that the countries expanded into are geographically close and many share relatively similar characteristics to Malaysia. All the countries under study here are literate, and the political system in each country is established. In spite of its small population, Singapore’s appeal as a destination market stems from its literacy rates and GDP per capita, both of which are significantly higher than other countries in the region. High population and literacy rates in the Philippines have made the market the second most popular for BT&C firms’ business expansions. Indonesia and Thailand share close trade volumes and literacy rates with Malaysia. China’s large population and trade volume might be expected to make it a popular market among EMBT&C, but the results are somewhat contradictory. The market in China is complex and demanding, which is out of serviceability by BT&C firms (SMEs) from an emerging market that usually lacks resources.

To enter a foreign market, the founder or the top management in the BT&Cs evaluates the country’s regulations, staff, client profiles and operational costs in the market. “When evaluating markets, we focus on the country’s regulations, staffing and customer support,” explains Company B. Company C states, “Every market entry depends on a foundation of strong people, including clients and staff.” “The main considerations for us to get involved in a partnership in a host market are the determination and proactiveness of the partners,” explains Company E. Company G states, “However, it still depends on the accessibility of the country and operational costs, which represent the main challenges.” Although the major BT&Cs in this study internationalise into psychically close countries, the market demand, a country’s regulations, the proactiveness of partners and staff members and operating costs are the main factors under consideration when BT&Cs select their markets.

4.3 Business network

The strong influence of a business network in firms’ internationalisation is portrayed in this study. The senior director of Company A describes the business network serves as the biggest reference and communication platform, using resource sharing and providing long-running forms of business cooperation among their stakeholders. Company C has a strong company network that consists of their high-profile participants, suppliers and trainers. Company D has approximately 20 clients who are engaging with their services on a long-term contract basis, and they have 17 professional trainers who serve as associates with the company.

A technical network is very interesting. People somehow get connected because of their technical strength and similarity, and we want to rely on this network to continue to build our strength, notes Company E.

The senior manager of Company E believes that a strong network can build a strong presence and create a full-time operating company. In Singapore, Company F has a good network of professional trainers; the country’s strong educational system and English literacy levels have enabled training programmes to be effectively conducted. The CEO of Company F stresses that skills and the business network are important capabilities in excelling in the BT&C industry.

Network and reputation are important. You need to have a good network with government organisations, GLC, and HR in MNCs in Malaysia. They are the decision-makers, and they are more likely to go for something that has been recommended to them, explains Company G.

Company G has a strong network relationship with many MNEs’ human resource managers and government agencies to promote and grow their business. The executive in Company H maintains the contractors, trainers and clients in terms of keeping good records and offering continual follow-ups with clients to solve problems and discover new needs. In general, all the BT&C firms in this study acknowledge the importance of the business network in their internationalisation and maintain a strong network in their business. While previous studies propose the importance of the business network for MNCs in advanced countries, this study confirms the importance and contributions of the business network in service-sector internationalisation, especially for the BT&C firms in this study.

4.4 Internationalisation challenges

The majority of the firms encounter language problems in their business expansion into foreign markets, as many foreign participants are not fluent in English. “The language factor is challenging in order to go there. The Thais are not so good in English,” commented the director of Company F. The director of Company G also states, “In terms of [English] language, I would say Japan is somewhere behind Malaysia.” BT&C firms have to recruit translators or request that participants explain the materials to other participants who do not understand what is being discussed in the training session. “We have to use translators. It is very difficult when training and using a translator, as two languages are involved,” explained Company A’s senior director regarding their training sessions in Thailand.

In Vietnam and China, if you want to conduct your session, you need to speak clearly and slowly […] most of the time the participants hear what we try to say and then they will translate it into their own language for their own understanding, comments the trainer in Company D.

To respond to the limited English-language fluency among the Thai people, Company A’s senior manager designs their training programme to target working adults in Thailand who are more proficient in English. However, language proficiency is not a barrier for Company G, whose director speaks fluent Thai and incorporates the language into his training programmes in the country. The training in Thailand for Company G is successful and receives good feedback from the participants. The director in Company B recruits trainers who have good training experience and business networks in Japan to conduct training and consultancy services in the country. None of the firms have language problems in Singapore.

Although one of the main reasons for BT&C firms to expand into nearby countries is the cultural factor, it is easier for BT&C firms to adapt when compared with cultural adaptation in Western or other geographically distant countries. However, the results show that cultural differences are substantial for EMBT&C. “Sometimes, when they say ‘yes, yes, yes’, they may not mean yes. They are more polite [indirect],” notes Company A’s senior director, in terms of the company’s expansion into Thailand. After the expansion into a foreign country, many of the firms in this study have only just discovered that responding to the cultures in the nearby countries is difficult. The BT&C firms in this study have to localise their training and consultancy to adapt to local cultural practices, except Company F, which does not proactively internationalise the business but plans to internationalise aggressively in the future.

“They are very structured. They learn rules and systems, but not through experience like Malaysians do. They are not competitive or fun-focused but straight and serious in focus,” comments Company G’s director. The director of Company G has to modify his teaching methods in Japan, resulting in a more structured and goal-orientated style, as opposed to his usual fun-focussed and game-oriented training sessions. The majority of firms in this study involve local individuals and agencies to market and organise training and consultancy sessions, as they claim that local agencies in the host market understand their country and respond better. Company C hires local agencies to handle legislations and regulation matters in Saudi Arabia.

Increasing operational costs and staffing issues continue to affect BT&C firms as they are expanding into foreign market. Company A downsized the Singapore branch to reduce operational costs. Company B shut down the branches in Vietnam and Shanghai, while Company H ceased operations in the Thailand branch. These closed branches were recorded to have high operating costs and difficulty in staff retention. Company C has very good management with low operating costs and good levels of staff retention. The company involves a long-term contract with a quality supplier to secure fixed prices and good service. As a result, Company C is able to estimate the rising costs and, at the same time, maintain service quality. The majority of staff members within Company C joined the company as juniors and have earned their promotion in the company through the meritocracy system.

Many BT&C firms give the feedback that they are affected by the general perception from the foreign market that favours BT&C firms from advanced nations. Many clients are not confident with small BT&C firms originating from an emerging nation. “Sometimes companies have the perception that consulting company services from the US or Europe are better,” explains Company B. “They have the wrong perception that advanced-nation firms are better than locals,” observes Company D.

Australians seem to have biases [prefers] for Western trainers unless the Asian trainer is good. But Asians are the opposite. For Asians, as long as it is an English name or trainer, they look highly on them, explains Company F.

Companies B, E and G respond with customisation and localisation in terms of their services to better respond to foreign markets’ need and characteristics. The director of Company G understands that languages and soft-skills training are important in the markets, particularly in Southeast Asian countries. He has designed and introduced training programmes that blend language assessment with soft-skills training, which have received an overwhelming response in Malaysia and Thailand. On the other hand, Companies A, D, E and F respond differently to Companies B, E and G by improving the accreditations and certifications of the company.

When it comes to pricing, people drop their price to attract customers. We don’t fight on price. We fight on our competitive edge value. What value we can give them and the long-term performance, explains Company A.

The BT&C firms in this study encounter low demand for their services in certain foreign markets. Companies E and H experience low demand for their services in Thailand. Company D’s current activity in Brunei has ceased because of low demand, and Company A in Vietnam is inactive. In response to low demand in the foreign markets, different BT&C firms are adopting different strategies. Companies B and D are charging a premium fee for their training programme, which is receiving an overwhelming response. They charge a lower rate for training programmes that are competitive. Companies A, C, F and H, which act differently from Companies B and D, retain their standard pricing without reducing the price. Companies A, C, F and H provide value adding for their participants, such as resourceful training materials and after-training follow-ups. Marketing is an ongoing effort to promote BT&C firms’ services to foreign markets. Education is also required to increase the awareness in certain markets, such as Indonesia, China and Thailand, on the important of BT&C as the country develops.

Language proficiency, cultural differences, operational matters, country-of-origin perceptions and low demand in certain markets are the internationalisation challenges faced by the firms in this study. While the existing literature emphasises the efficiency and effectiveness of the BT&C firms’ services, mismatching services to clients, ethical issues, service costs and many others, BT&Cs should be aware of and prepare for other international challenges.

4.5 Capabilities

All the firms in this study agree that recruiting qualified staff members is essential to the success of their foreign businesses. An active partner in Manila drives the business expansion in the Philippines for Company A. Trainers with a great deal of experience in Japanese culture make Company B’s training in Japan successful. A meritocracy system in Company C cultivates experienced and passionate staff members to work for the company, especially in the international sales offices.

Our people are very committed to what they do. We have a large number of people who have been with our business for 10, 15, or, like my case, 20 years. That is probably one of the biggest factors in our success. We know what our clients want, and we make sure we deliver, notes Company C’s CEO.

Company D appoints freelance associate trainers based on the expert area in their training and consultancy requested by clients to achieve cost savings and training efficiency. An experienced operations manager in Company E is able to manage the Malaysian and Singaporean business operations simultaneously. The production manager in Company F comments that many BT&C employees in the host markets learn about operations and training materials from foreign firms before setting up their own firm in their country. Synergy among the founder, employees and trainers in Company G makes the company flexible and responsive to their clients’ needs. Good communication and ongoing support from an employee in Company H with their clients have resulted in 92 per cent of their clients becoming returning customers.

Companies A, G and H are responsive to their clients and customise their services according to their clients’ needs. According to Company A, “Every customer has their own problem. If you go deeper as you listen more, then the problem should be different.” “We are small, and we are responsive. We customise. Customisation is important,” comments Company G. “Contractors are from that market; they know the market and have the network of customers, and they will make the expansion more successful,” notes Company H.

Companies A, C and D localise their services to the host country’s characteristics and are sensitive to the cultural differences between the home country and the host country. “Overseas, one will be a culture of expectation. Sometimes we work faster than other countries, but they prefer it to be slower”, states Company A.

We encountered a cultural problem in a Middle Eastern event in terms of operations. We need to hire a man to organise the event or run an event. They are not really keen on a woman to run the work, comments Company C.

Company D adds, “In overseas training, you need to be aware of the country, the location where you are, and certainly the cultural differences.”

Companies G and H also emphasise marketing efforts in foreign markets to uphold their brand image to compete with their counterparts. “We improve our quality and products and improve on cost by trying to maintain a competitive cost,” comments Company D. Company D is the only company in this study that states that cost efficiency is the main capability required to succeed in international markets. The visionary and innovative capabilities within Company A make the company one of the market leaders in Malaysia.

Qualified staff, customisation, localisation, branding, cost efficiency, innovation and vision are the BT&C firms’ capabilities that are demonstrated in this study. The capabilities of the BT&C firms in this study form a competitive advantage to compete in the international market (Table II).

5. Implications and conclusion

Globalisation and ICT advancements have enabled service firms from emerging markets to internationalise their business and services at an ever-increasing speed and scale. Although the internationalisation of EMSMEs continues to accelerate, the industry has received limited attention among scholars (Griffith et al., 2008; Morck and Yeung, 2007). The internationalisation of EMSMEs is characterised by significant and often unique challenges that are critical and subject to analysis in the service sector. The research on the BT&C industry solves the issues encountered, thus facilitating industry growth.

This study explored the application of internationalisation theories to the BT&C industry in an emerging market, with particular emphasis on firms’ entry modes, psychic distance, business networks, international challenges and capabilities. Consistent with various other studies, the internationalisation decisions made by the firms here were influenced to some extent by psychic distance, business networks and business capabilities. However, these firms’ market entry was also characterised by a phenomenon that has received less scholarly attention, namely, their particular mode of entry. Our findings indicate that BT&C firms may adopt service travel, partnerships, outsourcing and branches to internationalise their operations.

This study also highlighted some of the key internationalisation challenges facing EMSMEs, underlining the importance of business networks and capabilities. This study confirms the sequential incremental pattern of internationalisation: business expansion from low to high psychic-distance countries (Forsgren, 2002; Hipsher, 2006; Mathews, 2006). The firms in this study are expanding into low psychic-distance countries, especially geographically close countries (Johanson and Vahlne, 1977; Kujala and Törnroos, 2018). However, firms in this study do not seem to select their market principally in terms of psychic distance from their home country. Their market choice appears to be driven to a large extent by alternative factors, namely, the market demand, a country’s regulations, the proactiveness of partners and staff members and operating costs. Johanson and Vahlne (2009) revised the Uppsala model to acknowledge the importance of the business network in a firm’s internationalisation. This study confirms the importance of business networks for service-sector SMEs.

A number of challenges were discovered and analysed in this study. The main challenges faced by the firms were low language proficiency, cultural differences, operational matters, country-of-origin perceptions and low demand in certain markets. To confront these challenges, qualified staff members, customisation, localisation, branding, cost efficiency, innovation and visionary are the capabilities that form a competitive advantage for the firm to compete in the international market. Although the firms in this study are encountering a number of challenges during their internationalisation, certain firms in the study are able to leverage their capabilities and achieve a competitive advantage in the foreign markets.

The conclusions presented here should be considered in light of the study’s limitations. This study is a piece of qualitative research based on the experiences of eight firms. The basis of this study is inadequate for scientific generalisation. However, the research objective was to explore the applicability of the current internationalisation theory to service-sector SMEs from the emerging markets and generate insights. Quantitative research should be conducted in the future to provide a statistical test and empirical results. This study is concerned with the emerging-market context. The data were collected from firms in one country, Malaysia, and one industry, BT&C. The study could be expanded to include more industries and other emerging markets in the future. In spite of their merits, qualitative interviews are susceptible to accusations of bias; for example, the personal likes and dislikes of the interviewer and interviewees can affect the judgement on this research topic (Cassell and Symon, 2004; Silverman, 2016). Nevertheless, this study shares useful and practical discoveries concerning the internationalisation process of BT&C firms from the emerging market, focussing on entry modes, psychic distance, business network, the challenges faced and the required capabilities.

Figures

The business network internationalisation process model

Figure 1.

The business network internationalisation process model

Analysis of the countries in terms of their psychic distance

Countries Population GDP Literacy(%) Trade Political system
Singapore 5.8 million $87,100 96.8 $353.3bn Parliamentary republic
Philippines 102.6 million $7,700 96.3 $38.2bn Presidential republic
Vietnam 95.3 million $6,400 94.5 $169.2bn Communist state
Indonesia 258.3 million $11,700 93.9 $136.7bn Presidential republic
Thailand 68.2 million $16,800 96.7 $190.0bn Constitutional monarchy
China 1.3 trillion $14,600 96.4 $2.1tn Communist state
Malaysia 30.9 million $27,200 94.6 $167.3m Federal parliamentary constitutional monarchy

Summary for interview companies

Company A B C D E F G H
Year of establishment 1984 1995 1983 2006 2002 2000 2012 2003
No. of employees 12 7 50 23 60 3 10 18
Founder education background PhD PhD MSc PhD PhD, MSc, Bachelor Master Certified Coach, B Bachelor Bachelor
Organisation structure Hierarchy Departmental Departmental Team-based Departmental Team-based Team-based Departmental
Entry modes Partnership, branch Service travel, branches Outsourcing, branches Service travel Service travel, partnership, branch Service travel Service travel, branch Outsourcing, branches
International markets Thailand, Philippines, Vietnam, Singapore Vietnam, China, Cambodia, Myanmar, Singapore, Indonesia and Japan Singapore, Japan, Australia, India, Pakistan and Saudi Arabia (in progress) Philippines, Vietnam, Brunei and China Singapore, Thailand, Taiwan and India Thailand, Singapore and Indonesia Thailand, Japan and Indonesia (in progress) Singapore, China, Indonesia and Thailand
Internationalisation performance Philippines (good), other (not good) Branches closed, service travel Good Good Moderate Good Japan (poor), Thailand (good) Thailand (poor), others (good)
Business network The pillar of the business Not maintained Not maintained Well-maintained, strong Well-maintained, strong Well- maintained, strong Well-maintained, strong Well-maintained, strong
Internationalisation challenges Language proficiency, government regulations, terrorism Country-of-origin perception, regulations, cost, language proficiency Cost, staffing, terrorism Language proficiency, low demand in service, country-of-origin perception Firm’s size small Language proficiency, technology and introvert participants, country-of-origin perception Cultural, language proficiency Cost, market awareness on the need of BT&C, language proficiency
Competitions Moderate Strong Moderate Moderate Strong Strong Moderate Strong
Strategies to overcome Cooperation with local government, network with clients Customisation and localisation Contract suppliers, appoint local individual and agency, staff meritocracy system In-house training, telemarketers, se and promote government support Partner with local agents, advertise in network and industry association Translator, accreditation and certification Customisation and localisation Publicity
Business capabilities Visionary, first-mover, innovative Long establishment, guarantee scheme Market as English-speaking event, staff arrange job according to event Flexible, low service charge, government grant, innovative Collaboration with leading technology partners Established and reputations, customisation Degree in Asian literature, company small, dynamic and innovative Returning customers, cultural sensitive and understanding

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Corresponding author

Shir May Ooi can be contacted at: shirmay@uum.edu.my