Analysis of Factors Impacting International Expansion of Indian SMEs

This research proposal, submitted by Survesh Rawat, investigates the factors influencing the international expansion of Indian Small and Medium Enterprises (SMEs). The study aims to analyze the role of SMEs in India's economic development, identify opportunities in the international market, and examine the challenges faced during global expansion. The proposal includes a comprehensive literature review, exploring the meaning and role of SMEs, market trends, expansion reasons, and relevant theoretical frameworks. The methodology outlines the research design, philosophy, approach, data types, collection methods, sampling, data analysis, and ethical considerations. The research seeks to understand the significance of SME internationalization, addressing the problem statement and contributing to the existing body of knowledge on SME growth and global market entry. The research also intends to determine the challenges faced by SMEs domestically and internationally. The proposal concludes with a discussion of research limitations and a proposed timescale for completion.

Research Proposal
To analyse the factors affecting the International expansion of Indian Small and Medium
Enterprises
Survesh Rawat
Student Id- 77161693

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Significance of the research......................................................................................................2
Aim and objectives of the study:..............................................................................................2
Problem statement.....................................................................................................................2
LITERATURE REVIEW................................................................................................................4
Introduction................................................................................................................................4
Meaning and role of SMEs in India.........................................................................................4
Indian SME market – Opportunities and Recent trends..............................................................5
Challenges faced by the SMEs at the global level or expansion:...........................................6
Reasons for expansion by SMEs...............................................................................................8
Theoretical Framework................................................................................................................9
RESEARCH METHODOLOGY..................................................................................................10
Research Design........................................................................................................................10
Research philosophy..................................................................................................................10
Research approach.....................................................................................................................11
Research Type...........................................................................................................................11
Data types and Collection..........................................................................................................12
Sampling and sample size..........................................................................................................12
Data Analysis.............................................................................................................................12
Ethical Considerations...............................................................................................................13
Research limitations...................................................................................................................13
Timescale...................................................................................................................................14
REFERENCES..............................................................................................................................16

INTRODUCTION
Small and medium enterprises play an essential role in the development of economy.
They are contributing towards the growth and development of the nations. It is evident that
micro, small and medium enterprise contributes almost 37% in GDP of India and it employs 805
lacs Indian. It further assists is rising the standard of living along with elevating poverty (SME
Street. 2015). In this context, small scale can be refer to a company which has investment of Rs.
25 lacs to Rs. 5 crore in plant and machinery. Contrary, big enterprises are the one that has
investment of more than Rs. 10 crore in plant and machinery (Chand, 2015). Considering this,
SME are responsible for creating many employment opportunities for the people. The customers
are getting wide range of products and services. The production scales are rising for these firms
and it leading high growth and profitability. These firms operate on small scale but gradually
their contribution becomes high. The challenges for the company depends upon the size and
scale of the business. The higher the scale, higher will be the difficulties (Azam, 2015). It could
be easy for an SME to operate within the domestic conditions. At the global level the conditions
become different. In the present context, even the business environment for SMEs have become
highly competitive. Due to the increasing size and needs of customer, firms are looking for
expansion in their products and services. They expect to increase their size of business that is
taking the operations at the global level. Government of various nations also emphasize on the
development of small and medium enterprises. It is because they are the source of innovation and
growth for the country (Brines, Shepher and Woods, 2013). Many of the SMEs have been held
responsible for new discoveries in different business sectors. For example AMP Americas is a
small company in U.S. which produces compressed natural gas. It is a very innovative business
in the category of alternative fuel market. This is because fuel is converted from the cow manure.
It is giving benefits to the firm, government as well as the customers within the society.
Globalization can be understood by the term of internalization. Indian companies are looking for
more global customers for their businesses. They should internationalize because more
customers means more sales and more profit (Canaan, 2011). There are many opportunities
waiting for the SMEs in the international market such as high demand of handicraft and hand
made products, creative art products, high growth rate, etc. It is giving them the platform to
create awareness about the products and services that they are selling. However, along with the
opportunities, there are many challenges also which are faced by the SMEs. In this context,
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major challenges that been faced domestically by Indian SME are less support from government
as regulatory bodies focus more on large scale companies, high competition from giant
organization, limited reach in the market, poor marketing activities, irrelevant strategies, lack of
professional knowledge, inappropriate banking and financial products, low production capacity,
huge constraint over expansion and series of other challenges. In addition to it, challenges lies in
international context are low capital, poor knowledge of product and buyer, low knowledge of
new market, no idea about latest market trends and related. These factors certainly affect the
growth of Indian SME and hence make a direct impact on GDP as well. This research study has
been undertaken for the purpose of analysing the factors influencing the expansion of SMEs in
the international market.
Significance of the research
Every research holds a certain significance. In the present context, every firm whether
small or big size, is looking for expansion in some terms. Expansion is essential to enhance the
level of sales and profitability. This expansion could be in domestic form or could be beyond the
boundaries of the nation. However, the expansion is not easy as there are many economic,
political, social factors which puts an impact on the business activities. This research study
defines the role of SMEs for the development of the economy. It find outs how these small scale
firms can give big contribution to the country. The main focus is on finding the challenges faced
by the SMEs in the journey of international expansion. Further, it could be an interesting
research for the economists and scholars who wants to deal with such kind of subjects.
Aim and objectives of the study:
The major aim of the research is to analyse the factors affecting the expansion of Small and
Medium Enterprises in the international market within the context of Indian SMEs. In order to
achieve the above aim following objectives have been framed:
 To examine the role of SMEs in the economic development of India.
 To find out the opportunities for Indian SMEs in international market.
 To identify the challenges faced by the SMEs while expanding at global level.
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Problem statement
There is always a reason behind happening of any research. It is performed for the purpose of
finding the solution of a problem which is been explored. In this scenario, the problem is
expansion for SMEs. Many investigations have been performed on the subject of Small and
Medium Enterprises (Darling, 2011). Very little amount of evidences have been collected. This
study makes an effort to find out the reasons for challenges faced by the Indian SMEs at global
level. It will also discover the opportunities prevailing for them within the international market.
It is an issues because the business world seems to be dominated by the big size companies. The
small scale firms are still finding it hard to come forward and establish their presence.
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LITERATURE REVIEW
Introduction
Literature review is a section which deals with the theoretical knowledge and concepts. Under
this part, contribution from previous researchers can be examined. An effort is made to find out
the gaps between old studies and existing study. The section holds a great importance from the
researcher point of view. All the terms, concepts and theories related to the subject are examined
in a brief manner. The following study is about analysing the factors which influences the
internalization of SMEs in global market. It will describe the role of the SMEs in the
development of the economy. It will discuss the challenge faced by these firm while operating at
the global level.
Meaning and role of SMEs in India
Over the last decade, SMEs within different business sectors have grown into a
significant force. This means firms have started diversifying into different sectors of trading. It is
increasing the range of goods and services. It is driving the overall expansion of the industry.
These companies are creating innovation, developing products and solutions (Eggers and et.al.,
2013). The innovation can be seen in terms of services. For example different online platforms
and thing like social media has given many business ideas to the small entrepreneurs. Due to e-
commerce now every product or service can be discovered online. The Indian market is making a
rapid progress in various industries such as manufacturing, engineering textile & garments,
retail, agro etc. Progress here means growth.
The companies are getting increasing opportunities in order to enhance their business
activities in core sectors. The opportunities are in terms of expansion, increased sales,
profitability, enhancing portfolio etc. Under the section 7 of Micro, Small and Medium
Enterprises Development (MSMED) Act 2006, the Indian government has given several
definitions for the SMEs.
A firm engaged in the manufacturing or production of goods pertaining to any industry specified
in the First Schedule to the Industries under the Development and Regulation Act 1951, as –
(i) A micro enterprise, where the investment in plant and machinery does not exceed twenty-five
lakh rupees (Gilmore, 2011)
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(ii) A small enterprise where the investment in the plant and machinery is higher than twenty-
five lack rupees but does not exceed than five crore rupees,
In case, if the enterprise is engaged in rendering of services, then it can be regarded as a,
(i) A micro enterprise, where the investment in equipment is not higher than ten lakh rupees
(Harvie and Chye Lee, 2002)
(ii) A small enterprise where the investment is higher than Rs. 25 lacs, but it is not higher than
five crore rupees. In this regard, enterprise can take any form such as proprietorship, company,
cooperative, association of persons, Hindu Undivided Family, partnership, joint venture, etc.
Indian SME market – Opportunities and Recent trends
SMEs can rightly be called as the backbone of the GDP of India. This sector contributes
around 40% to the entire output of the nation. At present there are over 11 million SME units in
India and about 90% of the industrial units in the country belongs to this sector (Hutchinson,
Quinn and Alexander, 2006). Some of the small sectors within the industry have gained adequate
confidence and competence in order to venture out at the global level. For example these small
sectors include advertising agencies, marketing consultancy, typing centres, photocopying shops,
industrial consultancy etc.
In this regard they are searching for opportunities which can aid them in the global
expansion. In the recent years, high growth has been the mantra for most of the Indian SMEs
(Silicon India. 2016). One such example of high growth of Indian SME is Baggit which
increased exponentially over the year that made annual sale of Rs. 34 crore recently. The
expansion strategy was adopted by the companies through increasing the borrowings from the
market (Khan, 2012). Baggit and Wills Lifestyle are the example that made expansion to varied
cities of India with a motive to attain high growth rate. This thing also leveraged their balance
sheets. According to the economists, the borrowing was acting as interest costs which was much
lower than the return on the investments they could generate. However, the rate of growth has
decelerated over the last one year. The reasons identified for low growth rate are high interest
rates, high debt and many others. Small scale companies are now focusing high on utilization of
capacity and efficiency (Klonowski, 2012).
The SMEs are looking for diversification in order to hedge their risks and to enhance the
top line. It is because they want to minimize the level of risk. Increasing the portfolio of products
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and services will help in subletting the level of risks. The options related to entering into adjacent
areas, markets and collaboration with other firms are open for them (Lindstrand and Lindbergh,
2011). The goals and objectives are concerned with moving up the value chain and to go global
level in the context of business. For that purpose they are seeking for partnerships in order to
create the right competencies. It is also giving many opportunities for business partnerships. Due
to increasing size and needs of customers, firms are looking for expansion in their products and
services (Sen, 2014). The upcoming generation of entrepreneurs are well educated as they are
carrying a broad and technology oriented outlook (Marchesnay, 2011). Most of them have been
graduated and post graduated from the foreign universities. These people are making efforts to
establish their own mark in terms of diversification of the business that they are doing.
Technology is being adopted in order to increase the business efficiency. In order to connect with
the customers, they are taking the path of digitalization (Mitchell, Hutchinson and Bishop, 2012).
These kind of firms are large in numbers and are scattered very geographically.
The SMEs have understood the importance of staff retention and up gradation for
attaining sustainable growth. They are looking after ways to train the employees for a brighter
career development. The need more efficient and satisfied employees. Hence the trend of
training and development for the people within the firms is also growing (Nummela, Loane and
Bell, 2006). The quality of products and services has also started to become very important. It is
because customers have become more educated. Their requirements are also influenced from the
market conditions. It is giving rise to innovations and opportunities for collaboration is also
increasing widely. More business is being sought from outside in terms of materials, processes
and technology (Awe, 2006).
Challenges faced by the SMEs at the global level or expansion:
It is not easy for the small scale companies to operate on the global level. They nature of the
industry is very dynamic. At every level, firms are faced with different types of challenges.
These challenges can be described as follows:
 Big scale of customers – Under the domestic market, SMEs generally operates with low
number of customers. The size of the business is not that large as it is possessed by the
big scale companies (Benzing and Chu, 2009). In case of expansion at the internal level,
the number of customers for the products increases. The expectation at the global
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platform is also different from the domestic stage. Changes can be noticed in their
behaviour. Their attitude towards the services might be different. In such case, it may be
difficult for the company to read their customers. Framing of strategies could become
difficult. It is a big challenge for the SMEs (Gill and Biger, 2012).
 Economic conditions – Another biggest challenge is the difference between the economic
conditions of the two countries. Firm taking entry into a new international market may
not get the same favourable conditions which was prevailing in the domestic market.
Factors such as GDP, purchasing power, recession, inflation etc. affects the business
practices of the guest company (Harris and Patten, 2014). It may face many challenges in
the survival of the business. Hence it is important to take into consideration these factors
before implementing the strategic decisions.
 Efficient manpower – At the global level, SMEs will require employees who can
contribute their maximum efforts towards the goals and objectives of the business.
Working within the domestic market is comparatively easy as there are no such wide
complications (Peltier, and Naidu, 2012). The employees are required to be trained in a
manner that they can become capable of facing any kind of global difficulties. At the
global level, the business conditions are different and it is expected that employees can
face issues.
 High costs – It is evident that SMEs operates on a small scale and the costs of operations
are also small. When company decides for internationalization, the costs of business
increases. Expenses related to several aspects changes. Financial difficulties can be faced
in meeting the high costs (Perry and Coetzer, 2009). It may impact the other activities of
the business also. The implementation of strategic options can become little difficult due
to financial burden. The SMEs can face issues in bearing the costs.
 Competition level – The competition level is not only high in case of large size industries
however high rivalry can also be seen in case of SMEs. Many new entrepreneurs are
emerging with the change in time. The success rate is very high and it is inspiring the
other to get entry into the race. They all are competing with high level of strength and
giving each other a solid competition (Sian and Roberts, 2009). Due to which, the range
of products and services are also increasing. Most of the SMEs wants to achieve
expansion and this has increased the intensity of the competition.
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 Rules and regulations – Operating at the domestic level could be easy for the SMEs as
the rules and regulation are not complex. On the opposite the regulatory conditions at the
global level are very different. The rules become much more difficult. These things can
act as massive hurdles in setting up business in another countries. The political, economic
and social conditions can be different from the domestic level.
Reasons for expansion by SMEs
The SMEs are adopting the option of going to global market in terms of business. There can be
many reasons which are inspiring these companies to go for expansion. These can be described
as follows:
Limited resources - The small scale firms are having low size business structure. They normally
operates on small volume depending upon the requirements and capacities. Their resources are
limited in terms of finance, manpower, infrastructure, services etc. (Tennant, 2007). With these
resources, they cannot go for growth within business, hence they go for expansion. It strengthens
the conditions of SMEs and they are enclosed with many resources.
Diversion towards technology – There is a need to attract more global integrated customers. In
that case association with a technology oriented company can be very sustainable for the
business. Technology is a weapon through which success can be attained effectively. The
customers are also becoming techno-friendly (Brines, Shepher and Woods, 2013). E-commerce is
the most ongoing trend in the sector. Many SMEs are diving into finding the opportunities
available through internet. Many entrepreneurs are taking the e-commerce route to establish
themselves in the international markets.
Achieving a strong brand name – Firms are now expecting to have the entire world set up and
did not want to stick around to a regional set up. They are entering into the option of strategic
alliances with overseas brands. Working with a strong brand creates high awareness about the
company (Hutchinson, Quinn and Alexander, 2006). It also helps in reaching to the global
customers and the targeting of goods and services becomes easy. Strong brand presence provide
strength to the business and also increases the portfolio of products.
Innovative products – Another reason identified for expansion is to increase the range of
innovative products. There is a requirement of innovative products in the industry in order to
gain the competitive edges. The research and development of the SMEs must be strong so that
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they can stand parallel to the large size firms. Expansion is done in search of innovation for the
business.
Theoretical Framework
Figure 1: Theoretical Framework
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Challenges
faced by Indian
SME
Opportunities
for SME
High Profit
Innovative Products
Large base of
customer
Micro Finance
Initiatives
Poor Economic
Conditions
Low Capital and
Poor Brand Name
Poor reach
Lack of Specialised
Knowledge

RESEARCH METHODOLOGY
Research methodology shows the application of different types of research tools and techniques
which are used in the collection of data. The methodology section holds a great importance as
the quality is depended on it. All the tools and techniques are to be used with proper justification
(Forzano, 2011). The reasoning behind every selection must be appropriate. Researcher must
adopt the tools in an effective manner so that quality results can be produced.
Research Design
It is the blue print of the research which is responsible for making sure that data is being
collected and interpreted in an effective manner. It assists in improving the quality of the
research. It is very useful in offering conceptual knowledge in a meaningful manner (Cooper and
Schindler, 2011). There are different types of research designs which are casual, case study,
experimental, prescriptive, exploratory etc.
For this research, a combination of descriptive and exploratory design will be used in
order to examine the factors influencing the expansion of SMEs in the international market.
Exploratory design will be used because the researcher has observed an issue and is making
efforts to gain some valuable information (Creswell, 2013). This issue is related with the
internationalization of small and medium enterprises of Indian companies. The use of descriptive
design will help in adding some more information about the subject. It is appropriate because
research is in context with a particular country that is India. However, exploratory study aids in
gaining new insight of the subject matter but it lacks offering in-depth description. Due to this,
researcher will not able to gain in-depth knowledge of factor that affects internalization process
of Indian SME. However, to remove this barrier, descriptive design is also applied in this study
which aids in explaining the role of each factor in details. This helps in attaining the research
objective in effectual manner.
Research philosophy
It is regarded as the thought process of the researcher. There are four types of
philosophies which include Positivism, Realism, Interpretivist and pragmatism. However
interpretivism is not appropriate because the study is of such nature that it requires collection of
information from all the positive aspects. While pragmatism is not appropriate because it fails to
establish cause and effect relationship between the two variables.
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