Framework of Barriers in SME Internationalization (6-8)

The conceptual framework in this study highlights the various barriers that hinder the internationalization of small and medium-sized enterprises (SMEs) in emerging nations, which can be classified into social and cultural barriers, technical barriers, economic barriers, political barriers, organizational barriers, legal and regulatory barriers. The study emphasizes the importance of organization readiness for successful internationalization, with SMEs needing to ensure that all required resources are accessible and proposed strategies are ready to be deployed effectively.

Running Head: Literature Review
Barriers to Export Performance in Developing Countries Small and Medium Enterprises – Study of the
Nigerian Agro-Industry”: Chapter 2- Literature Review

1
Literature Review
Table of Contents
Introduction:....................................................................................................................................2
Literature Review:...........................................................................................................................3
Theory of Internationalization for SMEs:....................................................................................3
Benefits of Internationalization:..................................................................................................4
Motive of SMEs to internationalize:............................................................................................5
Background of Nigerian Agro-Industry:.....................................................................................6
Barriers to internationalization of the agro-industry:..................................................................8
Barriers on export performance of SMEs agro-business:............................................................9
Role of government and other institutions in aiding SME internationalization:.......................10
Conceptual framework:.............................................................................................................12
Organization Readiness:............................................................................................................14
Conclusion:....................................................................................................................................14
References:....................................................................................................................................16

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Literature Review
Introduction:
This literature review elucidates the diverse internationalization theories based on which the
SMEs undertake to take their operations to an international level. There are several reasons due
to which the modern SMEs look forward to spreading their businesses beyond the national
boundaries such as for gaining global reputation, enhancing market share, growth, profitability
and also for the purpose of ensuring sustainability in the long run (Cavusgil & Knight, 2015). It
can be observed that with the advancement of the emerging nations owing to the enhanced
influence of globalization, the role played by the SMEs in the economic development of the
emerging nations is assuming increasing significance and this is one of the major motivations for
the SMEs to take their businesses to an international arena. The Nigerian agro-industry has the
potential to enhance its current production capacity along with the opportunity to market the
agricultural products to different countries which will ensure generation of significant revenues
in billions per year for the country through the export of its agricultural products. However, there
are certain barriers that the SMEs have to face when they are planning to export their products
beyond the domestic boundary (Peng, 2014). These are the barriers to internationalization and
exports that have been studied in this chapter. Furthermore, the role of the governments and
other institutions of the emerging nations in supporting the internationalization of SMEs has also
been analyzed in this chapter. Finally, the discussion of the conceptual framework of the study is
put forward with the concept of organizational readiness that makes the SMEs, especially the
ones operating in the agricultural sector to consider these barriers and implement appropriate
strategies in overcoming them.

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Literature Review
Literature Review:
Theory of Internationalization for SMEs:
In the opinion of Anderson and Gatignon (1986), international expansion for a business
organisation is important if it wants to achieve growth and profitability in the long run. An
organisation of any size or scale must consider a suitable entry mode for entering into an
international market. There are several factors that need to be considered by an organisation that
wishes to enhance its business operations into other countries and as such a trade-off has to be
made between the costs allocated for several resources and the need for control that is required to
be undertaken by the organisation that wishes to achieve an international expansion. There can
be several modes of international market entry depending on the type of the business, nature of
its products and services and the environment of the business. Some of the most common modes
of international market entry undertaken by organisations consist of licensing, joint venture,
wholly-owned subsidiary, contractual joint venture, franchising, etc. (Anderson & Gatignon,
1986).
According to the observations of Wright, Westhead and Ucbasaran (2007), the SMEs face
several challenges in expanding their business operations at an international level, such as the
lack of adequate funds and other resources, along with absence of adequate technological and
technical know-how that might facilitate the internationalisation process. The International New
Venture (INV) theory considers international entrepreneurship for the SMEs that is guided by
several factors like the timing of the process of internationalisation, the entry mode for
internationalization, effects of the factors related to the national environment, availability of
various external resources that leverage the motive of internationalization, etc. Therefore, the
International New Venture (INV) strategy can be considered as one of the most widely

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Literature Review
implemented techniques of internationalisation that is being undertaken by the modern SMEs
around the world (Wright, et al., 2007).
Benefits of Internationalization:
According to Tiberti (2017), the process of internationalization offers the opportunity to the
SMEs to be able to achieve more market growth and profitability which is one of the major
driving forces of a large section of the modern small and medium-sized enterprises planning to
take their business operations across the international borders. One of the potential causes due to
which many of the modern SMEs are undergoing internationalization is the declining sales
within the domestic circuit and the saturation and stagnation of the national market.
Internationalisation offers the SMEs to change their fortunes within the national markets and
achieve enhanced growth, profitability and sustainability by taking their products to the
international consumers. Therefore, internationalisation process enables SMEs to focus on
spreading their business activities across the global markets wherefrom they can achieve a more
secure financial position by being able to enhance the sale of their products to the international
consumers along with the domestic consumers (Tiberti, 2017).
Information gathered from The Journal UK (2010), reveals that there are several benefits that an
SME might derive through going international with its products and services. For instance, some
of the key advantages that an SME might gain by undertaking internationalisation strategy are
factors such as reinforcement of growth, achieving long-term sustainability and achieving
enhanced competitiveness. A small or medium-sized business unit operating in a country might
find it difficult to be able to carry on its business activities for a long time due to factors such as
market saturation, extreme competition with other SMEs and most importantly with the large-
scale domestic organisations offering similar products and services. Therefore, going

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Literature Review
international with its business operations will enable the small or medium organisation achieve
economic stability by being able to enhance their scale of business across multiple countries.
Therefore, exporting is one of the most suitable and beneficial international market entry
strategies that an SME can undertake in order to reap the benefits of the international markets.
So, the benefits that an SME can gain by undertaking international business expansion are many
and this is the major driving force that is driving the modern SMEs in diverse sectors such as
manufacturing or agriculture to enhance the scale of operations of their business to international
level (The Journal UK, 2010).
Motive of SMEs to internationalize:
In the observation of Jacobsson (2015), the process of internationalisation which is also known
as offshoring can be considered as one of the emerging trends in modern business environment.
The modern small and medium enterprises are focusing more on internationalization in order to
achieve the benefits of large-scale production through achieving economies of scale. One of the
major motives of the SMEs to undertake international expansion is the achieving of competitive
advantage within the industry. With the unprecedented growth and development of technology,
the modern business organisations that are small or medium-sized are also having enough
opportunity to expand their business to the global markets. One of the major drivers for
undertaking internationalization is cost-cutting. The other reason for which a large number of
organisations undertake internationalisation is to access resources which are internationally
available. Furthermore, the other key motivation for the SMEs to expand into foreign territory is
the new market opportunity (Jacobsson, 2015).
According to information gathered from Forbes (2015), one of the major motivators of the small
and medium-sized enterprises to go global with their business operations is to achieve a greater

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Literature Review
client-base with the opportunity to expand their business on a much larger scale. Though, the
general conception is that it is only the large-scale business organisations that can successfully
undertake internationalization, with the modern development of technology and government
assistance any small business unit can achieve successful internationalisation with limited
resources, if proper strategies are implemented by the management. There is an array of reactive
reasons due to which an SME might feel the motivation to undertake internationalization. Some
of such motivating factors are the need to enhance the sales which are currently not satisfactory
within the domestic market and for achieving successful diversification of business operations
along with the several risks of doing business. Some of the other key motivators for
internationalization are reaching closer to the target consumers, achieving cost-reduction in labor
supply and also for mitigating the saturated home market conditions (Forbes, 2015).
Background of Nigerian Agro-Industry:
On the basis of the available information gathered from The Punch (2019), agricultural business
in Nigeria has significant opportunity of improvement and contributing more to the economy if
proper strategies are undertaken by the government to provide for the financial assistance and
technological support to the sector. It is expected that the agricultural export in Nigeria can fetch
the country around $40 billion per year, if the overall state of agricultural production within the
country is improved. There needs to be an enhancement in the capacity of agricultural production
in Nigeria. Along with this, there needs to be better processing of the agricultural products and
marketing of the same within the country and also across international territories, in order to
exploit the possibilities of the sector to its fullest. As suggested by many experts, the Nigerian
government should focus on adding value to the agricultural products produced, rather than
exporting them directly to the international countries in a raw state. It will be possible for the

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agricultural sector of the country to gain more revenues and profitability across international
markets, if the agricultural products are sold to the foreign nations after there is value addition to
those raw agricultural products, before exporting them to different nations. One of the major
problems faced by the agricultural sector in Nigeria is the lack of proper knowledge in exporting
agricultural products. The government is dedicated to offering assistance in the form of
knowledge and skills to the young entrepreneurs so that they can take their small and medium-
scale agricultural business operations to foreign nations that will strengthen the economic
condition of the country and take it towards the path of faster growth and development as an
emerging nation (Okon, 2016).
In the opinion of Essiet (2019), the Nigerian agro industry will grow significantly in the next few
years by the end of 2022. There will be an increase in the volume of agro exports from the
country into the European and the American markets. This depends on the strategies undertaken
by the government and the private sector in empowering the farmers and the producers to meet
the required standards of safety. It is estimated that the agro exports from Nigeria have the
opportunity to grow to around N100 billion by the end of 2022. This can happen if the agro-
export sector can capitalise on the opportunities provided by the overseas buyers. According to
the National Bureau of Statistics (NBS), the total volume of exports from Nigeria increased to
23.9% on a year-on-year basis to a figure of N 1.7 trillion in December 2018. Out of these
exports, the contribution of agricultural goods was around 108.9 %, consisting mainly of
sesamum seeds. But the agricultural sector in Nigeria is not able to reach its desired position due
to several limitations such as quality issues, unsatisfactory road conditions leading to access to
the ports, and the Non-tariff Measures (NTM) undertaken by the developed countries such as
Europe and the US for achieving several purposes like protecting the health of the people in a

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Literature Review
country and its environments, such as limiting the use of pesticides in food, and setting other
restrictions such as import quotas, restrictions on exports, technical trade barriers, subsidies on
exports and special licenses (Essiet, 2019).
Barriers to internationalization of the agro-industry:
According to Gebrewahid (2016), there can be a host of factors which prevent export of goods
by the small and medium-sized enterprises to different countries. Exporting can be considered as
one of the most widely implemented policies by small and medium sized organisations that
contribute significantly to the development of a nation. However, an SME has to face several
export barriers before it can successfully sell its products in international markets. There can be
various factors that impact the internationalisation policy for the SMEs belonging to diverse
sectors, such as manufacturing or agricultural small-scale business units. Few of the major
factors acting as barriers to the small-sized producers in exporting their products to international
markets are government policies, human resource problems, product quality issues, financial
issues, lack of effective knowledge and information on marketing and promotions and the
competitive barriers which act as major restrictions in exporting the products produced by the
small and medium-sized enterprises (Gebrewahid, 2016).
In the opinion of Al-Hyari, Al-Weshah, Alnsour (2012), an array of factors is responsible for
acting as major barriers towards the internationalisation process of the small and medium-sized
enterprises which comprise of the exporters as well as the non-exporters that are willing to take
their business operations beyond the domestic borders. It has been identified that some of the key
factors acting as barriers to the internationalisation process of the SMEs are political, economic,
legal and governmental factors that play significant roles in restricting the internationalization
process of these business establishments. Apart from these, there are some other factors as well

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Literature Review
which hinder the export of products manufactured or produced by the small and medium-scale
producers and manufacturers, such as the barriers related to financial aid and information that
clearly have a negative relation with the export performance of the small and medium-sized
organisations (Al‐Hyari, Al‐Weshah, & Alnsour, 2012).
Barriers on export performance of SMEs agro-business:
In the observations of Rahman, Uddin and Lodorfos (n.d.), among several factors influencing the
export business of the SMEs, the role played by the institutional factors is pivotal. There are
several informal and formal institutions which play a major role in the export strategies of the
small and medium-sized Enterprises. These institutions have an impact on the coordination and
transaction costs of the small and medium-scale exporters that are engaged in the process of
internationalization. These institutional factors play an important part by impacting the export
performance and export propensity of the manufacturers and producers that wish to export their
products to international markets. Due to small scale of the SMEs, it is difficult for them to
bypass the institutional barriers and therefore, the management of such organisations should
undertake careful consideration of the obstacles in order to ensure that the export trade can be
conducted effectively and growth and profitability is maintained. The economic barriers play a
major role in affecting the internationalization of the small and medium-sized organisations.
There are several political factors which also determine the export strategies to be undertaken by
the several small and medium-sized enterprises, while planning to undertake internationalization
in those countries. There might be some political instability or legal barriers in entering the
foreign markets along with elements such as corruption and unsatisfactory legal support that
might act as barriers to the export performance of the SMEs (Rahman, Uddin, & Lodorfos, n.d.).

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Literature Review
According to Tesfom and Lutz (2006), the SMEs in the developing nations have to face several
barriers related to their export performance that can be classified into several factors such as
barriers related to the corporate, barriers related to products, barriers encompassing the export
market, barriers related to the industry and the barriers concerning the macro environment. It can
be determined that there are several factors which act as barriers to the export performance of the
various small and medium-sized enterprises in sectors such as agriculture or manufacturing.
With the growth and development of the emerging nations the exports play a major role in
strengthening the economic foundation of such emerging nations. However, the process of
exporting products by a small and medium-sized enterprise is too complicated because of the
various internal and external environmental barriers that the exporters must consider when
deciding their export performance strategies. The process is less complicated for those exporters
who are already into the process of exporting their products to foreign countries as compared to
those exporters those are planning to take their business across international borders for the first
time (Tesfom & Lutz, 2006).
Role of government and other institutions in aiding SME
internationalization:
According to Valerio (2015), the small and medium enterprises need support on an economic as
well as on a developmental level in order to make it convenient for them to undertake
international exports. It is important to prioritise the development of the small and medium
enterprises for the purpose of promoting the economic growth of the emerging nations in the
long run. It can be concluded that with the growth and development of the emerging nations the
governments are playing major roles in supporting the internationalisation process of the small
and medium enterprises. There are several financial institutions that have been developed in

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Literature Review
various emerging nation markets for offering credit to the small and medium enterprises and also
with the purpose of offering them the required knowledge and skills that will enable the
entrepreneurs to successfully take their business to international level. The role of the
governments and the central banks of the emerging nations is instrumental in offering the
required financial assistance and knowhow to the small and medium-sized enterprises such that
they can successfully sell their products across the global market and thereby achieve growth,
profitability and sustainability in the long run (Valerio, 2015).
In the observation of Costa, Soares, and de Sousa (2017), there is an emergence of the industrial
business associations (IBAs) that play a major role in utilising the resources of institutional
networks to assist and support the process of internationalisation for the small and medium-sized
enterprises. It is evident that the small and medium enterprises require adequate support from
several institutions that are of financial and non-financial nature. Though the governments in the
emerging nations are coming up with robust and sound policies to facilitate internationalization
of the small and medium-sized enterprises, yet the support of other institutions like the IBAs are
instrumental in achieving the desired growth, profitability and sustainability of the small and
medium enterprises within the developing nations. Some of the major support offered to the
SMEs by the institutional networks consists of strategies involving promotion, counselling,
offering training and development, extending technical and legal support, participating in
information sharing and achieving cooperation with diverse institutional establishments (Costa,
Soares, & Sousa, 2017).

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Literature Review
Conceptual framework:
Figure 1: Conceptual Framework demonstrating the role of Institutional Environment on Export
Perfromance
Source: (McAdam, Bititci, & Galbraith, 2017)
The above conceptual framework in this literature study reveals the several factors that influence
the export performance of the SMEs such as the elements of innovativeness, pro-activeness and
the risk-taking abilities in the international markets. These factors are moderated by one of the
major moderating variables in the study that is the ‘Institutional Environment’. It has a major
impact on all the aforesaid three factors and they influence the ultimate export performance of
the SMEs in the international markets.

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Figure 2: Conceptual Framework of barriers in SME
Source: (Elkington, 2018)
It is evident from the above conceptual framework in this study that there are several categories
of barriers that act as major roadblocks to the internationalization of the SMEs in emerging
nations. They can be classified into the following:
 Social & Cultural Barriers
 Technical Barriers
 Economic Barriers
 Political Barriers
 Organizational Barriers
 Legal & Regulatory Barriers

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Literature Review
Organization Readiness:
In the opinion of David and Cariou (2014), in achieving success with internationalization
strategy, it is essential for an SME to have the desired level of readiness or preparedness in terms
of ensuring that all the required resources are accessible and the proposed strategies are ready to
be deployed effectively. It is highly essential for the SMEs in the emerging nations to test the
level of readiness before planning to enter into a foreign market because it involves an array of
risk factors for the SME to expand its business such as exports into international markets. If the
SME is not well-equipped to deal with the emerging risks and uncertainties present in the global
market, then there will be high chances of failure for the SME from the process of
internationalization. Therefore, it is essential for the management of the SMEs to analyze the
degree of preparedness in terms of all the resources and assets before finally going ahead with
the proposed international expansion into the targeted foreign market. An effective examination
of the level of organizational readiness ensures that the SME will taste success in its proposed
internationalization venture into the foreign market. This ensures growth, profitability and
sustainability of the SME in the long run (David & Cariou, 2014).
Conclusion:
On a concluding note to this literature study, it is evident that internationalization strategy is the
key to long-term growth and success for the SMEs operating in the emerging nations across
several sectors such as manufacturing, agriculture and others. There are several advantages of
internationalization for an SME in recent time due to the unprecedented growth and development
of the emerging nations and the extended support and aid offered by the governments and several
institutions to support the SMEs with technical knowledge, financial and other resources.
However, there are several micro and macro-environmental factors that hinder the

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Literature Review
internationalization process of the SMEs in the emerging nations. These factors should be
considered by the management of the SMEs and prudent international marketing strategies
should be formulated such that they can successfully expand into the global markets by
converting the challenges into opportunities through prudent management decision-making and
abiding by all the rules and regulations of export and import as framed by the countries within
which the SME intends to export its products. This literature review has offered a sound
theoretical knowledge base for the next part of the research that is the Methodology.

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Al‐Hyari, K., Al‐Weshah, G., & Alnsour, M. (2012). Barriers to internationalisation in SMEs:
evidence from Jordan. Marketing Intelligence & Planning; Vol. 30 Issue: 2, 188-211.
Anderson, E., & Gatignon, H. (1986). Modes of Foreign Entry: A Transaction Cost Analysis and
Propositions. Journal of International Business Studies 17(3); DOI:
10.1057/palgrave.jibs.8490432, 1-26.
Cavusgil, S. T., & Knight, G. (2015). The born global firm: An entrepreneurial and capabilities
perspective on early and rapid internationalization. Journal of International Business
Studies; 46, 3-16.
Costa, E., Soares, A. L., & Sousa, J. P. (2017). Institutional networks for supporting the
internationalisation of SMEs: the case of industrial business associations. Journal of
Business & Industrial Marketing, Vol. 32 Issue: 8, 1182-1202.
David, J.-P., & Cariou, G. (2014). Evaluating the Firm’s Readiness for Internationalization: from
the Design to the Application of an International Qualification Framework. International
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Elkington, J. (2018). Towards the sustainable corporation: Win-win-win business strategies for
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#4f8a6fcd1eb8
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Jacobsson, E. (2015). Internationalization a competitive advantage for SMEs? Master’s Thesis in
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