Is it more than a mirror image? – Inward internationalization of manufacturing SMEs

Abstract

Internationalization is a major topic in business literature. Research on internationalization dates back from the early 20th century. However, the focus was mostly on the outward movements of organizations during their internationalization process. It was in the later half of the century that the significance of the other half of internationalization was raised up, particularly via Luostarinen’s research. Since then, inward internationalization – inward movements in an organization’s internationalization, has gained more attention from researchers.

In 1970s, Luostarinen established Finland’s International Business Operations (FIBO) program to study the internationalization of Finnish firms and foreign firms located in Finland. Under this program, in 1999, Korhonen found that Finnish manufacturing SMEs tend to internationalize inward first before outward. Moreover, she concluded that inward internationalization’s effectiveness can influence the success of outward operations. Inspired by her research, this thesis aims at providing in-depth understanding of how manufacturing SMEs carry out their inward internationalization, establishing foundation for further research relating to inward internationalization.

Six manufacturing companies were studied to construct this multiple case study, but one was finally excluded due to data insufficiency, leaving the research with five cases. The case companies were either the same ones as in Korhonen’s research or selected based on criteria defined by the researcher.

The results illustrate the inward internationalization of each company and reasons behind their activities. A major finding is that although all companies have inward internationalization operations, they are not aware of the topic of inward internationalization. Besides, importing is found to be the most common form of inward internationalization among firms, confirming previous research results. In addition, the importing actions performed by companies can be more complicated than mere buying decisions.

The case companies’ inward operations can be categorized into three types: Pure buying, Buying while collaborating with suppliers for product development, and Inward internalization in Human resources. These activities exchange products from physical goods to intellectual properties, from tangible to intangible, in an increasing order of relevance to the companies’ core business. At the same time, the degree of resource commitment from companies increases accordingly.

Besides these, the research also suggests that SMEs’ inward internationalization may not follow a gradual development as indicated by Uppsala model – a prominent model in internationalization literature first built by Johansson and Vahlne in 1997.