The 16th Annual McGill International Entrepreneurship Conference: Researching New Frontiers

Torkkeli, Kuivalainen, Saarenketo, Puumalainen - Learning Orientation and Network Competence in Growth of International SMEs

Lasse Torkkeli, Olli Kuivalainen, Sami Saarenketo, Kaisu Puumalainen

Lappeenranta University of Technology, School Of Business,

P.O.BOX 20, FI-53851 Lappeenranta
Extant literature has found internationalization of small- and medium-sized enterprises (SMEs) to be driven by their business networks, as network relationships allow them access to the necessary resources they may lack themselves. Dynamic capabilities of firms to develop and manage their network relationships have received less attention however, and some ambiguity is abound whether internationally operating SMEs should prioritize developing specific capabilities such as network competence, or if becoming an organization geared towards learning in general is sufficient. Therefore, in this paper, we aim to illustrate how learning orientation and network competence of international SMEs are linked to their growth over a longer time period.
Research on international entrepreneurship has discussed a variety of strategic orientations, and they have been found to have a positive effect on the success of internationalizing SMEs. For instance, international entrepreneurial orientation, international entrepreneurial orientation, market orientation other strategic orientations have been found to have positive effects on the internationalization process of SMEs, including their strategic decisions and their performance. However, the role of learning orientation has mostly been absent from the discussion on strategic orientations and the internationalizing SME. We suggest that the more SMEs effort to be able to absorb knowledge of the markets residing outside their domestic borders -the more learning oriented they are- the better they are able to grow as firms, and thus hypothesize that higher levels of learning orientation are positively related to sales and asset growth of internationally operating SMEs. We also form hypotheses on a positive linkage between network competence of these SMEs and their growth, and examine if there are moderation or mediation effects in the relationship between learning orientation, network competence and international growth of the SMEs.
Our empirical data consists of a sample of 110 internationally operating Finnish SMEs across five industry sectors: metal, food, furniture and software industries, and knowledge-intensive business services. The data were collected through a web survey in 2008 and was later updated with financial sheet data up to 2010.
Through linear regression analysis, we find firstly, that cross-relational network competence explains the growth of sales in international SMEs during the six-year time period. However, neither the relationship-specific dimension of network competence, nor learning orientation exhibited statistically significant results. Furthermore, a distinction emerged between the types of growth that the SMEs experienced: when growth of the internationally operating sample firms was measured by growth in assets, neither of the two major explanatory variables were statistically significant. We suggest this to indicate how higher levels of network competence may enable internationally operating SMEs to achieve their strategic goals without controlling assets, as access to them via network relationships may be enough. This is further supported by the fact that, when growth was measured through the proxy of sales growth, we found that the cross-relational dimension of network competence explained a substantial part of the increase in sales. Thus, we also suggest that learning orientation may not be enough for these SMEs to achieve sales growth, if the relevant types of dynamic capabilities are not developed as a result. Namely, it seems that cross-relational network competence is required, as the relationship-specific dimension is not strongly related to longitudinal growth in internationalizing SMEs.
The significant interaction effect of relationship-specific network competence and learning orientation can be due to the fact that our measurement of relationship-specific network competence focused on exchange of information and coordination between a firm and its partner. However, learning orientation in a firm is much about learning new things by receiving new information to be able to gain competitive advantage and eventually survive in a competitive market place. The 'willingness to learn' from other firms, which naturally helps an SME to overcome liabilities related to internationalization should eventually increase the effect of network competence on sales growth. Consequently, it is a joint effect of the learning orientation and possessed network competence which enables firms to reap the benefits in the form of the significant sales growth. It is important to remember, however, that this is related to specific partnerships.

Finally, we found that a positive effect of learning orientation on the growth of internationally operating SMEs was limited to a somewhat constrained mediation, as it was found that only if growth is measured through increase in assets, do learning-oriented firms benefit growth-wise, and that this benefit only materializes in asset growth if the organizational learning is guided to develop cross-relational network competence.

We note several limitations in our study, ranging from the empirical context to the applied measures. For example, while the financial data were collected for a longer period (2004-2010), the fact remains that the survey was conducted at a specific point in time (2008), and thus provides a somewhat static view into the development of learning orientation and network competence in SMEs. Additionally, extant research often distinguishes between internationalization of SMEs in general and of international new ventures in particular. While the latter are usually considered a distinct type of SMEs and thus behave differently during their internationalization process, our analysis was conducted on a cross-sectional sample of SMEs across both manufacturing and service-oriented industries. While we did include an industry control variable in our analysis, further refinement and closer examination in specific industry sectors could provide an increasingly detailed view into the studied phenomena.