TALLINN UNIVERSITY OF TECHNOLOGY School of Business and Governance Department of Business Administration Jeremiah Oluwatosin Bakare KEY FACTORS THAT DETERMINES INTERNATIONALIZATION OF SERVICE FIRMS: EVIDENCE FROM ESTONIA SMEs – BOLT AND NORTAL Master’s thesis Business Administration, Internation Business Supervisor: Karsten Staehr, PhD 2019 1 I hereby declare that I have compiled the paper independently and all works, important standpoints and data by other authors has been properly referenced and the same paper has not been previously presented for grading. The document length is 14987 words from the introduction to the end of conclusion. Jeremiah Oluwatosin Bakare…………………………… (signature, date) Student code: A163707 Student e-mail address: [email protected] Supervisor: Karsten Staehr, Ph.D.: The paper conforms to requirements in force …………………………………………… (signature, date) Chairman of the Defence Committee: Permitted to the defence ………………………………… (name, signature, date) 2 Table of Contents ABSTRACT .................................................................................................................................... 5 ACKNOWLEDGMENT ................................................................................................................. 6 ABBREVIATION ........................................................................................................................... 7 INTRODUCTION ........................................................................................................................... 8 1.0 LITERATURE REVIEW ................................................................................................... 11 1.1 Theoretical Framework ..................................................................................................................... 12 1.2 Approaches and Theories on firms’ Internationalization ............................................................ 13 1.2.1 Process Approaches ............................................................................................................ 13 1.2.2 The Uppsala internationalization Model (U-model) ........................................................... 14 Critics of the Uppsala model ............................................................................................................... 15 1.2.3 Network Approach .............................................................................................................. 16 Critics of the Network approach ......................................................................................................... 17 1.2.4 Entrepreneurship approach ....................................................................................................... 17 Critics of the Entrepreneurship approach ........................................................................................... 20 1.3 SMEs – General Overview ................................................................................................................. 21 1.3.1 SMEs Internationalization ................................................................................................... 22 1.3.2 SMEs’ internationalization triggers ......................................................................................... 23 1.3.3 Proactive and reactive motives for SMEs internationalization ............................................... 23 2.0 METHODOLOGY .................................................................................................................. 25 2.1 Research design ........................................................................................................................... 25 2.1.1 Research approach .............................................................................................................. 25 2.1.2 Research purpose ................................................................................................................ 26 2.2 Research strategy ........................................................................................................................ 26 2.3 Data collection............................................................................................................................. 27 2.3.1 Case Selection ..................................................................................................................... 28 2.4 Data analysis ................................................................................................................................ 31 3.0 Empirical findings .............................................................................................................. 32 3.1 Case analysis ................................................................................................................................ 32 3.2 Case company 1: Nortal .............................................................................................................. 32 3.2.1 Introduction......................................................................................................................... 32 3.2.2 Enabling factors for internationalization ............................................................................ 33 3.3 Case company 2: Bolt .................................................................................................................. 38 3.3.1 Introduction Bolt ................................................................................................................. 38 3 3.3.2 Enabling factors for internationalization ............................................................................ 38 3.4 Cross case analysis ...................................................................................................................... 43 3.4.1 Internationalization motives ............................................................................................... 43 3.4.2 Internationalization barriers ............................................................................................... 45 3.4.3 Process of international expansion ..................................................................................... 46 3.4.4 Managerial/Owner vision .................................................................................................... 47 3.4.5 Market knowledge and commitment factors ..................................................................... 48 3.4.6 Relationship networks ......................................................................................................... 49 3.4.7 Value creation competencies .............................................................................................. 49 3.4.8 Foreign market selection and entry mode .......................................................................... 50 3.4.9 Strategic flexibility ............................................................................................................... 51 3.4.10 International marketing orientation ................................................................................... 52 CONCLUSION ............................................................................................................................. 53 LIST OF REFERENCES .............................................................................................................. 57 APPENDICES ............................................................................................................................... 63 Appendix 1. Face-to-face Interviews ....................................................................................................... 63 Appendix 2: Interview questions............................................................................................................. 64 4 ABSTRACT The rapidly changing business world, due to developments in ICT has given rise to entirely new types of firms and internationalization processes. In the context of service firms, their internationalization pattern differs from those of multinational enterprises, which traditional internationalization theories have been based upon, and questions whether traditional theories can explain the internationalization process of service firms. To answer this question, the present study used the case study approach to study two Estonian service SMEs (Nortal and Bolt) that had internationalized. The findings revealed that the service firms follow different internationalization patters both inline and in contrast to what had been proposed in traditional internationalization theories. The study also prevents evidence to show that the choice for a particular market, is based on firm specific selection criteria and that a firm’s specific interpretation of which strategy would best achieve their internationalization goals determines their choice for a particular entry strategy. The study also revealed that psychic distance and a firm’s value creation competence influence the choice of markets at the initial stages of internationalization. The present study proposes that the interpretation of internationalization by firm owners, is critical to further theorizing. Finally, the study makes specific recommendations for policy makers and managerial practices. Keywords: Internationalization. small and medium-sized Enterprise and emerging markets. 5 ACKNOWLEDGMENT First and foremost, I will like to give praise to God for giving me the strength to witness the end of my academic journey at Tallinn University of Technology