Formal or Flexible? Knowledge Assimilating Processes of Internationalising SMEs

Objectives: This paper aims to explore knowledge assimilation processes of internationalising SMEs. The research question that this study addresses is: How does knowledge assimilation take place, through formal or flexible means, in internationalising SMEs? Prior work: The accumulation of knowledge and learning by firms has been identified as critical to their internationalisation however extant literature on entrepreneurial learning has focused on the individual learning of entrepreneurs, rather than the wider organisational learning processes of SMEs. This research uses a framework based on the concepts of absorptive capacity and the knowledge based view (KBV) of the firm. Absorptive capacity emphasises the importance of firms ability to assimilate new external information and knowledge within a firms' existing knowledge base in order to increase learning. The KBV distinguishes between tacit and explicit knowledge complexities of the internal assimilation and transmission of knowledge by firms. Approach: A qualitative case-study approach is adopted, cases were selected from firms that were participating on an internationalisation programme run by Scottish Enterprise, the regional development agency. Primary data collection involved in-depth interviews with entrepreneurs/CEOs during 2003, 2004 and 2005. Focus groups held in 2008 with CEOs and policy makers, provided further insights into learning processes. Case study interviews and focus groups lasted 1 to 1.5 hours and were taped and transcribed. Extensive and unique access was gained to archival data on the firms, accessed through Scottish Enterprise (e.g. consultants' reports, company profiles), which together with the expert opinion of support agency account managers and programmes executives, provided both a means of validation and enrichment of the interview data. Themes were identified and matrix displays and text tables were used to perform within-case and focus group analysis. Results: The entrepreneurs and top management teams were very important to the assimilation of new knowledge. It involved firms developing a variety of formal knowledge assimilation processes to increase learning. As firms internationalise, management created routines to share knowledge internally amongst functional, technical and commercial managers, project teams, overseas managers, and overseas employees. To increase absorptive capacity and learning, it is important for firms to assimilate new knowledge internally by converting individual, experiential and tacit knowledge to explicit and objective knowledge shared within the firm. However tacit to tacit knowledge sharing processes were a key method used by firms to maintain an entrepreneurial orientation and flexibility as they grew. Implications: The findings of this research contribute to a more fine-grained understanding of organisational learning processes in internationalising small firms. Apart from the above theoretical implications, normative implications include (1) the importance firm to develop appropriate knowledge management system to support their international growth and 2) the role of policy makers to help firms develop learning capabilities.