HOW DO INTERNATIONAL ACTIVITIES INFLUENCE

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process as “the liability of foreignness” (Hymer, 1976; Zaheer, 1995). ... following the Schumpeterian legacy, which is present in the Oslo Manual (OECD, 2005) ...

HOW DO INTERNATIONAL ACTIVITIES INFLUENCE INNOVATION IN SMES IN EMERGING MARKETS?

Abstract This study presents supporting evidence to the proposition that internationalization activity of Small and Medium Enterprises in Emerging Markets (EM-SME) triggers subsequent innovation in marketing, product, manufacturing processes, and organizational processes. The authors performed content analyses of in-depth interviews with owners of four Brazilian companies from the footwear, printer’s ink, industrial ovens, and electronics industries. Two companies had international activities whereas the other two focused on the Brazilian domestic market. Findings suggest that the process of internationalization directly affect the type of innovation activity. Innovation activities support the companies’ foreign activities in the most internationalized companies, namely, the footwear and printer’s ink company; whereas in the less internationalized companies, namely, industrial ovens and electronics, innovation support domestics activities. The paper includes four company case descriptions and analyses as well as management and policy implications, and suggests that managers in charge of international expansion should factor the impact on innovation when developing and executing their company’s strategy in emerging markets. Additionally, policy makers should consider how international activities nurtures innovation and development in nascent industries.

Keywords: internationalization, innovation, SMEs, Brazil.

1

Introduction

Small and Medium Enterprises (SMEs) play a significant role in the global economy (Knight, 2001; Shrader, Oviatt & McDougall, 2000). SMEs represent a source of employment generations and innovation activities, two variables which have been highlighted in international studies (European Commission 2010). This is not different in Brazil, where SMEs present and behave in very particular way. Thus, the aim of this study is intended to provide a better understanding about how the internationalization activities of SMEs influence innovation activities in an Emerging Market context. Traditional literature defended the idea that any firm to go into the international market required a high degree of differentiation to nurture innovation before going abroad (Bernard & Jensen, 1999; Clerides et al., 1998; Roberts and Tybout, 1997; Melitz, 2003). Academics have presented new evidence to think companies can achieve better performance by establishing relationships with the international context (inward or outward). They present the idea that international arena is a source of continued flow of information and other resources, which allow the companies to take advantage of spillover and learning process (Melitz & Constantini, 2008; Boermans & Roelfsema, 2012). Thus, this study suggests that internationalization influences innovation activities. This study is developed at the firm level and is based on four companies which come from different industries (footwear, printer’s ink, industrial ovens and electronics). The companies were selected because they have international activities. The first two companies are focused on the international arena while the second ones are focused on the domestic market. The four companies are located in four different Brazilian states. Data was collected through in-depth interviews with people in-charge of international operations and innovation activities. Later, interviews were transcript in order to be analyzed through content analysis. This study presents evidence to think internationalization influences the SME’s innovation activities and performance, processes which are bounded by the Brazilian emerging context. Thus, findings suggests internationalization influences directly innovation activities which support mostly foreign activities in the first two companies (footwear and printer’s ink) and mostly domestics activities in the others (industrial ovens and electronics). Despite innovation activities, findings suggest innovation is not enough to nurture and succeed in the international arena, because the ownership and domestic conditions play an important role in company’s strategy.

This work is organized as follows. First, the literature review section shows the link between internationalization and innovation. Next, the method section reviews details about content analysis. The section of case descriptions and analyses for four companies is followed by findings and discussion. Finally, the last section presents some considerations and implications, several limitations are described, providing suggestions for further research.

2

Literature review

During decades, Uppsala model has been an important contribution to understand internationalization process (Johanson &Vahlne, 1977, 1990, 2003, 2013). Academics, taking the Uppsala model as reference, have studied the internationalization activities as being a gradual process, where the accumulated knowledge in the international arena is a factor that influence the commitment of SMEs to go to international market (Harold et al., 2000). In this way, the international commitment is directed linked to organizational knowledge, where knowledge is a result of organizational learning processes (Ruzzier, Hisrich & Antoncic, 2006), learning process that is conditioned to the environment (foreign and domestic) and business networks (Peng et al, 2008; Lin et al. 2009; Meyer et al, 2009). Academics agree that the first international experience of many companies was with customers from countries with a high degree of familiarity, the literature has coined this process as “the liability of foreignness” (Hymer, 1976; Zaheer, 1995). Thus, the international experience provided by customers from neighboring countries has supported decision making process and the level of commitment with internationalization strategy to go to further markets (Johanson & Vahlne, 2009; 2013). Authors as Oviatt & McDougall (1994, 2005) have presented works to describe cases where companies with strong background in knowledge and/or technology have been capable to go to the international arena without following the traditional gradual -approach, the literature describes this as leapfrogging process (Hedlund and Kverneland, 1983; Bureau of Industry Economics, 1984) and born global companies (Knight, 1996, Rialp et al., 2005) Several authors have found evidence to think some companies can be born global and others can be forced to go to the international arena. This behavior could be explained by changes in the environment, changes that influences the rules of the game (Bell et al., 2003; Peng et al, 2008; Lin et al. 2009). Even today, literature identified a dearth of academics work to shed light on how and why internationalization happens in SMEs that run in dynamics

environments (Oviatt & McDougall, 2005; Johanson &Vahlne,2013), particularly in emerging countries, where institutional frameworks are quite different, bounding any company’s behavior (Lin et al. 2009, Mike et al. 2009). Under bounded conditions, companies develop learning capabilities that supply an information flow. This information is transformed in organizational knowledge which is a key resource to support business’ strategy (Autio et al., 2000; Johanson & Vahlne, 2009; 2013). Authors as Kalinic and Forza (2012) suggest that international environment provides relevance information and resources that allow SMEs to develop new capabilities and/or dealt with new resources that can nurture a strategy to go faster to internationalization. 2.1

The internationalization and innovation Any organization has to be capable to recognize market changes and opportunities, in

order to organize changes and adaptation to succeed and survive. Thus, those organizational capabilities to support a process of identification, change and adaptation have been linked to innovation process (Teece, 1980, 1982; Nelson & Winter, 1982; Teece, Pisano & Shuen, 1997; Dosi, Hobday & Marengo, 2003). In this work the innovation concept is studied following the Schumpeterian legacy, which is present in the Oslo Manual (OECD, 2005) and its four types of innovations (product innovation, process innovation, marketing innovation and organizational innovation). According to Pavitt (2005), literature over innovation process presents features that are linked to economic sector, historical period, institutional aspects, etc. The author also describes that literature over innovation process is based on two important suppositions: innovation is a matching process and innovation represents uncertain that is linked to a learning process. Thus, a learning process based on international experience can influence innovations activities and performance. During several years, academics worked over the supposition that just the most productive, innovative and efficient companies could go into an internationalization process (Bernard and Jensen, 1999; Clerides et al., 1998; Roberts & Tybout, 1998; Melitz, 2003), and there are very innovative companies that start operations directly in the international market, which are known as born global (Knight, 1996). Currently, Literature suggests companies can improve productivity by participating in foreign activities. Thus, international environment provides an important flow of information, experience and resources, where some companies can take advantage of knowledge and technology spillovers and develop organizational

learning activities (Melitz & Constantini, 2008; Boermans & Roelfsema, 2012). According to this, companies can develop foreign activities and receive several benefits and not necessarily have interest in export activities or international market expansion, but in domestic market. Several academics suggest that investment in innovation influence positively all organizational operations and performance, providing positive returns (Hall and Mairesse, 1995; Adams and Jaffe, 1996; Kafouros, 2005). Other scholars have found evidence to think there is not any relationship or even negative effects (Arrow, 1962; Porter, 1980; Link, 1981; Sassenou, 1988; Chen and Miller, 1994). Others scholars (Plá-Barber & Alegre, 2007; Kafouros et al., 2008) provide evidence suggesting the return over investment in innovation is strongly linked to the firm’s internationalization degree. In this sense, and following a Schumpeterian approach, investments nurturing organizational change, can provide the possibility of several types of innovations, but those will be considered innovations whether affecting positively business total revenues. Plá-Barber and Alegre (2007) provided evidence suggesting there is a positive link between innovation and export intensity. They also showed the company‘s size does not affect innovation or internationalization activities. Several authors have highlighted that the empirical evidence is strongly conditioned to the industry’s characteristic. Thus, the environmental conditions affect directly to organizational operations and results, this relationships is supported by others studies (Pavitt, 1984; Peng et al, 2008). Literature presents evidence suggesting that companies with international activities have experienced higher productivity and innovation activities than those that only have operations in domestic markets (Boermans & Roelfsema, 2012). In this way, some evidence from Indonesia suggests that companies with import activities got improvement in productivity (Amiti & Konings, 2007). Evidence from Chile provides insights to think companies which import raw materials have had productivity improvements (Kasahara & Rodrigues; 2008). Countries from Africa suggest that companies exporting to developed countries can achieve higher labor force productivity (Van Bieseboeck, 2005). Thus, international activities influence the organization in different ways, particularly affecting innovation activities and performance, which lately could nurture international activities in new market. Several authors suggest that the innovation process in MNE’s could receive some benefits from international activities, because companies can acquire resources and

knowledge that is only available in the international market (Kotabe, 1990; Kobrin, 1991; Hitt et al., 1997; Kafouros et al., 2008). In the case of SMEs, companies face almost the same scenario, but the company’s behavior could be quite different, varying from a gradual internationalization strategy to a born global strategy (Kalinic & Forza, 2012). Additionally, evidence pinpoints that in SMEs the characteristics of managers (knowledge, attitudes and motivation) play a key role in the internationalization strategy, defining company’s behavior that are different among countries, or even among regions from the same country (Chetty & Campbell-Hunt, 2004). One of the benefits of international activities is linked to cost reduction in operations and innovation activities. This is possible because SME’s in the international market can buy, rent or hire different kind of resources (material, labor force, technology, etc.) from most productive and cheapest countries or regions (Granstrand et al. 1993; Kotabe et al., 2002). According to this, companies that play as partner of international production chain can nurture their innovation processes by exploring their network’s resources (Cheng & Bolon, 1993; Kafouros et al., 2008). Thus, literature provides evidence to show companies can fuel innovation process through taking advantage from network’s spillover (Griliches, 1979; Jaffe, 1986; Scherer, 1982; Kuemmerle1997; Chesbrough, 2003). Literature has presented evidence to think the international environment presents opportunities for company’s improvement. At the same time, every opportunity presents also a risk. In the same line, for instance, bigger the network, bigger the risk associated to sharing and access information. Then, a tradeoff between security cost and benefit is evident, where MNE’s can afford this kind of investment while SME’s cannot (Sanna-Randaccio & Veugelers, 2007). The risk is also associated to a problem of governance, because of the complexity to coordinate global networks and how to cope with geographical distance issues, again the bargaining power of MNE’s is significantly stronger than SME’s (Granstrand et al. 1993; Von Zedtwitzand & Gassmann, 2002). 3

Method

The aim of this study is to provide arguments to support a better discussion and understanding of how internationalization activities influence innovation process in SME’s, under an emerging environment as in the case of Brazil. In this work has been selected four companies from different Brazilian industry. These four companies are located in Rio Grande do Sul, Santa Catarina and Minas Gerais which are Brazilian States. All companies were

selected because they have international activities, different level of commitment in internationalization and are innovative. 3.1

Data Data collection was organized in two steps. During the first stage, secondary data from

the different industries were collected. A database from industry was consulted, as well as websites and associations. Thus, a group of seven companies were scheduled for visiting and interviews. In the second stage, seven interviews were organized. The interview was done following a script that is included as appendix one. Most of the time, we invited to the interview the founder, the responsible of international business, the person who coordinates innovation activities and the manager of the companies. After the interview, a technical visit to know the facilities was scheduled. During the technical visit complementary information is collected. 3.2

Data analysis Data analysis was made in two steps. Primary and secondary data were transcript in an

Excel file, organized per question and cases. Later, data in the Excel file was analyzed through content analysis (Bardin, 1977). In this process, the first activity was oriented to identify similarities and differences per groups of question in every dimension. Then, the activities were oriented to identify the characteristics describing how international activities influence innovation. This process allows identifying how SMEs developed internationalization activities and how these activities nurture innovation activities. Later, the study identified how internationalization and innovation activities were useful to execute the organizational strategy and also the role of owners and managers. 4

Results

This study presents four cases, companies which are running in different industries. At the same time these companies present common features as being involved in international activities, as well as being very innovative. The following paragraphs describe relevance details.

4.1

The fashion company. The fashion company was founded in August, 1993. The company has 30 employees

and is located in Campo Bom, a city from Rio Grande do Sul State. At the beginning, the

company opened a factory for making wood teaching toys, but later the strategy changed. Running in a footwear cluster, the company turned the production line to adornment for garments. The fashion company is a small organization, most of the production is sold in the domestic market, and just five percent goes to the international market, the owner described the real interest is to export 30% of the total production. At the beginning, the fashion company started attending the footwear cluster’s need. Most of the footwear companies made shoes for international private labels, which generally demanded international standard in product and processes. Thus, the fashion company had to learn how to achieve this international standard. During this process the company started to receive production orders that followed the trend of the European fashion. Therefore, in order to be up-to-date, the owners started to participate from international fashion events, which was useful to nurture the creation of new fashion. Following the international fashion trend, the fashion company began to develop a new concept every season, which was the result of a mixture of international trend with LatinAmerican icons, Brazilian issues, ecological motives, etc. The company export to all the continents, before the international crises the company exported to 29 countries. Currently, five percent of the total production goes to nine countries, and every day the company receives new customers asking for novelties in design and materials or looking for specific solutions. The owner described innovation activities started with a learning process of the customer’s requirement, later the company went into the fashion main stream. During this process, the company developed new concepts, which demanded the creation of new products and processes, opening the possibilities to create new market segments, and a well known reputation. The owner highlighted this situation, because this is the main reason why designers from all around the world arrive to the fashion company every day. When the owner was asked about the internationalization, he described the company from the beginning till today was involved in international activities. At the beginning, the company filled out orders of local factories which have to fulfill the requirement of international private labels. After this, the company started to create new concept, which allows the company to start partnership with different international fashion trademark. Currently, the company has and atelier in Paris, which is an important commercial point to present new collections and to serve all international customers.

When the owner was asked about the good and bad points related to the company’s business, he replies as follow: First, from the beginning, the fashion company receives the benefits of running in the footwear cluster of São Leopoldo in Rio Grande do Sul State. The company received indirectly international influence through this cluster and their international customers. This influence allows the company to nurture innovation activities which fostered the strategy to consolidate a position in the domestic market as well as the international arena. Second, the fashion company has received the support of SEBRAE to organize the production and administrative processes, as well as improvements in productivity. This has been a key change to achieve international standards, process that has been bounded by limited resources, which is the main limitation of this small organization. APEX is another organization which has been an important partner in the internationalization process, particularly providing support during international events to promote Brazilian companies. Third, the domestic environment is too hard for small organization, because there is not important incentive for new companies, particularly when small companies have to face the same level of taxation that a mature company does. In the same line, the international market presents a harder scenario, because of the fierce international competition, plagiarism acts and the cheap Chinese production. Thus, the owner described innovation and novelties are not enough to go to international arena, first it is relevant to learn how commercialized the production and how to deal with foreign customers.

4.2

The inkjet company The inkjet company is a nanotech organization which supplies water-based high

concentrated magnetic dispersion technology to an important multinational that produces printers. The company has 15 employees and started operation in 2009. The facilities are located in Lagoa Santa, a city from Minas Gerais State. Owners described the company as a micro born global company, because from the beginning till today the main objective was to exploit nanotech products and they just found commercial possibilities in the international arena. Currently, the inkjet company exports to just one big company, supplying ink to customer’s facilities in five countries. One of the owners describes their product as a very high concentrated ferro-fluid with a high stability and with the average particle size of about 50 nanometers. This ferromagnetic fluid is used in thermal inkjet systems to print documents using the MICR technology. Since

the magnetic particles are solids and insoluble in water, they need to be very small to avoid the cartridge´s nozzles to clog, but on the other hand, a high concentration of these small solid particles must to be present to guarantee a good magnetic signal response. This is where the inkjet company provides innovative solutions, and the reason to be chosen by a multinational printer producer. Owners describe innovation in this company as the core of the business, because at the beginning was built over the background in nanotechnology that owners possessed. After a research period, they realized there was not domestic market to sell the production. Therefore, the innovation level and domestic market conditions brought the company to be thought as a born global. They described that all the nanotechnology knowledge the company posses came from post graduation studies in international institutions and research activities in Brazil. Currently, the owner highlighted the company has registered three patents and four processes, describing they are in the state of the art of the business. Thus, products and processes are the type of innovation created at the Inkjet Company. Additionally, innovation activities are triggered by international customer’s requirement, which are fueled by R&D resources (15% of the total income is allocated to R&D). This allows the company to look for more sophisticated solution. During the interview, owners described the technology they developed has been the result of some partnerships (others companies, specialized laboratories and university’s facilities). They also highlighted that without a domestic market in Brazil, it was necessary to study and learn how to sell abroad. In this process, one important barrier was to get international certification as ISO and others, which are minimal requirement to supply multinational companies. Owners also pinpoint that all this effort was totally private and the company did not receive any help or support from public institutions. 4.3

The oven company The oven company started activities in 1980. Currently the facility is located in

Blumenau city, in the Santa Catarina State and has 100 workers. At the beginning the company started the business making industrial oven, a modern solution to substitute the traditional refractory brick kiln, which is heavy, inefficient in the use of energy and difficult to move. Founder told, his wife was a ceramist in the 80’s, when they had to move from one state to another, she indicated the necessity to take the kiln with them, and the necessity to solve this practical situation appeared. The founder started looking for new materials to build

a new easy to move oven, later he discovered a new ceramic fiber created by NASA (National Aeronautics and Space Administration). This new ceramic fiber allowed the founder to build a new kiln, which was lighter and energy efficient, the substitution of the brick by the new fiber brought an important time reduction in the heating and cooling process, reducing energy consumption. The new oven was a success among ceramists and soon the founder started to receive a bigger demand for his inventions, leading the company to be a leader supplier in the Brazilian market. Nowadays, the oven company is specialized in ovens (customized) and thermal treatment, where the industrial ovens are the most important product the company make. The company supplies ovens to all Brazil (company’s labs, university’s labs and others), as well as to customers in Latin-America, United States, Europe and Asia. When the engineering team was asked about innovation, they described that most of innovation are incremental and are trigger by ideas and insights from international events, customer’s requirements and partners’ standards. They said international events (most of the time in Germany) always provides important insights to improve quality and efficiency in the final product. They also highlighted there is not a budget for R&D, but every order is managed as a project, where research and look for new solutions is part of the business. There are several partners around the world, who provide valuable insights for improvement. Therefore, the oven company produces innovation in products and processes. The internationalization followed a very particular process, because at the beginning the founder did not think about to export. Later, some Brazilian customers began operation abroad, opening offshore facilities and starting to buy products from the oven company, thus, the company began to export ovens to Brazilian companies operating abroad. There are some new customers from Germany and Israel who knew about the company by internet. This experience and international events provided a global network of partners. Currently, the company started an alliance with a company from Spain, the purpose is to work together to develop project to attend Brazilian and European customers. Several times, project requires the participation of some partners as FURB (Fundação Universidade Regional de Blumenau) and its laboratories. Additionally, the company has received support from organization as SEBRAE. Thus, in order to develop its projects, the oven company has develops some partnerships with public and private organizations.

Additionally, owners complained about two points, the lack of government commitment with the sector and the taxation level. 4.4

The electronic company The Electronic Company began operations in 1988, in Blumenau, a city from Santa

Catarina State. The two founders were formal workers as electronic technician in the textile industry. In the 80’s, Brazil has complex regulation to import electronic equipment, so founders started to offer electronic maintenance services and the development of electronic devices. Later, during the textile crises, they decided to leave their work and to open the electronic company to attend other sectors. Nowadays, the company has 20 employees and a research team of five people who are not formal workers, but partners. The Electronic Company has customers in several Brazilian states and supply electronic components to three customers abroad. Unfortunately, exports are not frequent. The electronic company started providing electronic components for sport equipments. Currently, the company provides electronic components and devices for a Brazilian Petro-company, Brazilian navy and military. One of the founders highlighted the Brazilian market is an excellent market. Despite de good condition of the domestic demand, they are making changes to get some international qualifications and certifications to prepare the company to define a new strategy to go abroad. Founders describes that when the company started operations they did not have interest in exports, but suddenly, some orders from Argentina and Uruguay arrived. These customers said that when some electronic components had to be changed, they look for the information in the tag component. Thus, first exports went to Argentina and Uruguay, later to other Latin-American countries and to United States. Despite this export activities, this represent less than one percent of the total income. Nowadays, founders have interest in to go abroad but the company is not ready yet. Founders said innovation activities are mostly incremental and have two sources. One important source of innovation is an international event in Hannover – Germany. They said this event provides technology shows, insights, customers and partners. The other source of innovation is the customer’s requirements, because every order represents a new opportunity to create new solutions in product (components and software) and processes. For instance, visiting some factories (Germany and Italy) and following some customer suggestions, there

was strong evidence to think the company’s layout should be modified to achieve better performance. Founders also described the innovation activities are supported by public and private partners (FINEP, FURB and others). Additionally, SEBRAE is giving support to improve the productivity level. They also highlighted the governmental has not interest in the industry, remarking the lack of public institutions, laboratories to control the quality of electronic components and taxation benefits. In order to get certification of quality, The Electronic Company has to hire these services (test of quality and standardization) which are expensive and located abroad. 5

Discussion

This study was based on four SMEs from different industries. Next paragraphs will describe how SMEs began their international activities, identifying similarities among them. Later, an explanation will describe how these internationalization activities influenced innovation. Finally, a discussion will describe how the environmental conditions bounded de companies’ behavior. The fashion company described the company started international activities indirectly. This is because the main customers came from an important footwear cluster and this cluster attended international private labels. Step by step the fashion company learned about the fashion trend. Thus, the fashion company learned with customer, later with international event and now this background allows the company to design and create own concepts. Gradually the company started with domestic market and later started to attend foreign markets. This learning process linked to international activities is congruent with literature (Ruzzier, Hisrich & Antoncic, 2006). In the case of the inkjet company, founders opened a born-global company. At the beginning, they were looking for an organization to operate and commercialize in Brazil. Later, they realized there was not a Brazilian market to attend. Thus, the nanotech background of the company brought the organization directly to the international market. Founders described the nanotech knowledge was acquired in a developed country. This is congruent with the literature that describes that high tech companies generally do not have a gradual process to the international market. Instead, these companies go faster or directly to global markets (Knight, 1996, Rialp et al., 2005)

In the case of the oven company, they did not have any interest in international activities, but the great beginning was determined by the acquisition of a special fiber developed by NASA. Thus, the technology was imported. This allowed de creation of a new product that very quickly was adopted in the domestic market. Later, Brazilian customers opened facilities abroad, importing industrial ovens and other devices from the oven company in Brazil. Thus, the oven company learned about the use of a new technology, which allows the production of advance products that now are demanded abroad. This process of learning from foreign technology (Spillover) is congruent with literature (Melitz & Constantini, 2008; Boermans & Roelfsema, 2012). In the case of the electronic company, they started a learning process as electronic technician in the textile industry, when the industry collapsed, the opened the electronic company to provide electronic solution to others companies. They learned from imported equipment, and even today they still learned from imported equipment or from international events. The electronic company attends the Brazilian market, but its components are part of equipment that is exported by other companies. Thus, foreign customers call asking for parts and components for maintenance or substitution. Therefore the international activities were directly linked to a learning process (Ruzzier, Hisrich & Antoncic, 2006). It is evident that the four companies received information and technology from the international arena. Three companies used these resources to consolidate a domestic position and just one company goes directly to the international market. Ultimately, the oven company and the electronic company have accumulated enough information and experience to go to the foreign market. In the case of the fashion company, the organization is looking for niches where to allocate their new concepts. Table 1: Type of Innovation Type of Innovation Product

Process

Fashion company

Yes

Yes

Yes

-

Inkjet company

Yes

Yes

-

-

Oven company

Yes

Yes

-

Electronic company

Yes

-

-

Source: Authors

Marketing Organizational

-

Table 1 describes companies and the different types of innovation they developed. Thus, the fashion company created new products and processes and is offering a new fashion concept that has been adopted by famous private labels, opening a new market that is not well exploited. In the case of the inkjet company, founders created a process to produce a specific high tech ink that is sold to one global customer. The oven company created a new product and a new process to take advantage of the new fiber. The accumulated experience and international trend have allowed the company to create more efficient products and the possibility to go abroad. The electronic company has developed capabilities to provide assistantship in imported electronic equipment, creating devices and electronic component to supply Brazilian companies and some foreign customers. Thus, table one suggests that international activities have a key role in the innovation process of SMEs. Finally, all the interviewers highlighted the relevance to evaluate the environmental conditions, institutions and future changes, because these conditions bound the company’s behavior. For instance, the fashion company detailed the financial problem the company has to face because lack of experience dealing with foreign customer. Founder complained that every customer is different but follows behavioral patterns which are linked to the country or region where they come from (Peng et al, 2008; Lin et al. 2009). Therefore, these patterns deserve special attention. The owners of the oven company and the electronic company described the fierce competition in the international market, movement that is leading by China. In the Brazilian context, companies received some kind of support to improve organization performance, as well as resources to develop international activities in order to promote exports. All of them agreed about the limited commitment of the government, particularly issues related to taxation. They believe government should provide better support and preferences in order to stimulate production and export. The literature describes the relevance of taking into account the domestic and foreign conditions to define the company strategy, because these conditions bound the organizational behavior, and this certainly influences international activities and innovation (Peng et al., 2009).

6

Final Consideration and Implications

This study provides arguments to think international activities influence directly or indirectly innovation in SME’s. All companies received different kind of resources from the

international arena. Even with no interest in exports, companies developed several types of innovations that were useful to consolidate a domestic market position. Cases provide evidence suggesting the international activities can influence innovation, but this is not enough to go into export activities. For instance, all four companies made different types of innovations but just two of them went into export activities. This behavior describes that innovation is necessary but nor sufficient to go into export activities. This could be explained by the role of managers’ characteristics (knowledge, attitudes and motivation) has in SMEs. These characteristics define the level of commitment with the internationalization strategy (Chetty & Campbell-Hunt, 2004). Managers describes how difficult and complex is to run a company under the Brazilian conditions. Thus, Brazil as an emerging country presents an environment that is very dynamic. Therefore, this study presents some evidence about opportunities and difficulties a company have to face when running in the Brazilian market. This evidence could be useful for managers interested in to know how to deal with opportunities in Brazil. This study provides important insights for policy makers. Findings suggest that international activities influence innovation. Thus, policy makers could foster project oriented to stimulate nascent industries to go into international activities. This could cause important changes in innovation and productivity. In this study, cases provided evidence to think the contact with international environment can provide access to new technology and resources, which are relevance for companies and the development of the industry.

Acknowledgements The present study was carried out with the financial support of the Brazilian National Council for Scientific and Technological Development (CNPq), Coordination of personnel development of higher level (CAPES / PEC PG) and Fundação de Amparo à Pesquisa do Estado do Rio Grande do Sul (FAPERGS ).

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Appendix I ROADMAP FOR INTERVIEW Company’s name: ______________ What year did the company begin operations? _____________ In which sector the company operates? __________________ List the main company’s products: ___________________________________________________________________ ___________________________________________________________ A brief history of the company: ___________________________________________________________________ ___________________________________________________________ How many employees does the company have? _________ How many employees does the internationalization department have? _______ How many employees does the R&D department have? _________ INTERNACIONALIZATION STRUTURE When did the company begin international operations? _____________ How did the company go into the international market? ( ) Export: _________________________________________________ ( ) Strategic alliance: _________________________________________ ( ) Franchise: _______________________________________________ ( ) Merge or acquisition: _______________________________________ ( ) Green Field: _____________________________________________ How could be described the company’s management structure? ( ) A family business. Family members hold key positions at the company. ( ) A family business. Professionals from the market are hired to hold positions at the company. ( ) A corporation. Professionals from the market are hired to hold positions at the company. ___________________________________________________________________ ___________________________________________________________ How is the decision making process in the company? And the decision making process in the internationalization department? (new market, entre modes, strategy, etc.) ___________________________________________________________________ __________________________________________________________ ATITUDE Describe the company’s motivation to go into the international market? ___________________________________________________________________ ___________________________________________________________

Describe the criteria to select a country for internationalization? ___________________________________________________________________ ___________________________________________________________ Do the CEO and managers of the company have international experience? What kind of experience? (He/She lived abroad, work, studies, etc.) ___________________________________________________________________ ___________________________________________________________ INTERNACIONAL PERFORMANCE How many countries does the company export to? ___________ How many regions does the company export to? or have a production unit? ___ What is the percentage of revenues coming from the external Market? _____ Describe how internationalization affected the company’s performance (economic, market, innovation) ___________________________________________________________________ ___________________________________________________________ In your opinion, what are the main changes in the company linked to the beginning of international operations? ___________________________________________________________________ ___________________________________________________________ Which are the main difficulties did the company deal with during the internationalization process? _______________________________________________________________ _______________________________________________________________ How did the company overcome these difficulties? _______________________________________________________________ _______________________________________________________________ Does the company use any institutional support or governmental program to support internationalization activities? Which one? ___________________________________________________________________ ___________________________________________________________ INNOVATIVE PERFORMANCE • PRODUCT Describe the development process of new products at the company. ___________________________________________________________________ __________________________________________________________ In light of internationalization, is there any change in company’s products? Provide examples. ___________________________________________________________________ ___________________________________________________________ ( ) Incremental ( ) Radical

Is there any partnership for new product development? (University, incubators, suppliers, customers, government, research centers, events, consultants) ___________________________________________________________________ ___________________________________________________________ • PROCESSO How did the changes happen in the company’s production process? ___________________________________________________________________ ___________________________________________________________ In light of internationalization, is there any change in company’s production process? Provide examples. ___________________________________________________________________ ___________________________________________________________ Is there any partnership for new process development? (University, incubators, suppliers, customers, government, research centers, events, consultants) ___________________________________________________________________ ___________________________________________________________ • GESTÃO Describe how did changes happen at company’s management? (Decision making process, resource management, work team coordination, management information system, etc.) ___________________________________________________________________ ___________________________________________________________ In light of internationalization, is there any change at company’s management? ___________________________________________________________________ ___________________________________________________________ Is there any partnership for new management tools? (University, incubators, suppliers, customers, government, research centers, events, consultants) ___________________________________________________________________ ___________________________________________________________ • MERCADO How did internationalization activities impact on relationships with customers? ___________________________________________________________________ ___________________________________________________________ How does the company deal with international customers? ___________________________________________________________________ ___________________________________________________________ After the beginning of international activities, did the company expand the market share? Open new channels for customers / market segments? Expand network of contacts? How?

___________________________________________________________________ ___________________________________________________________ Is there any partnership for new market development, tools, satisfaction surveys, new communication channel for costomers? (University, incubators, suppliers, customers, government, research centers, events, consultants) ___________________________________________________________________ ___________________________________________________________ What is the percentage of revenue coming from new products (last 3 years)? ___________________________________________________________________ ___________________________________________________________ What is the percentage of revenue invested in R&D? ___________________________________________________________________ ___________________________________________________________ Has the company recorded patents? How many (last years)? ___________________________________________________________________ ___________________________________________________________

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