The Impact of Size on Internationalization

For most countries, prosperity depends on international trade. For example, in 1990, Canadian firms exported 146 billion (Canadian) in goods and services, or roughly 22 percent of Canada's gross domestic product (Statistics Canada 1991). However, as recent reports have noted, maintaining a country's standard of living requires that the domestic companies capture a larger share of international markets (Royal Bank of Canada 1991, Porter 1991). Much of this growth in exports is expected to come from small and medium-sized firms (Beamish and Munro 1987, Hardy 1986). Given the ascribed importance of these firms, the question arises as to whether they are capable of rising to the challenge? This article addresses this issue by asking two questions: Is there a relationship between size and internationalization? Is size a barrier to international activity? The first question seeks to evaluate the extent to which size has limited firms' international involvement while the second attempts to identify which firms are, in theory, capable of engaging in international activities. These two questions are examined in the context of three dimensions of internationalization: propensity to export; international sales intensity (international sales/total sales), and the countries served. LITERATURE REVIEW Most research on international business has started with the premise that small and medium-sized companies suffer from size disadvantages (Becker and Porter 1983, Levitt 1983, Mugler and Miesenbock 1986) that prevent or limit their ability to compete internationally. As a result, many studies on internationalization focus only on large businesses. However, some studies have incorporated a firm size variable within their investigation of internationalization. This section examines some of the literature surrounding the issue of internationalization and the small and medium-sized business in terms of international sales intensity and export markets. Exporters Versus Non-exporters In the study of the international sales orientation of firms, two distinct research streams have emerged. The first focuses on comparing the characteristics of exporters and non-exporters to see what differentiates the two. The second focuses on explaining what differentiates successful exporters (sometimes termed aggressive or committed exporters) from those firms who obtain a smaller percentage of their revenue from international sources, sometimes referred to as passive or experimental exporters (Cavusgil 1976, 1984). The size of the firm has been used as a discriminator within both research areas. Most studies have found that the larger the business, the more likely it is to export its products (Christensen, Rocha, and Gertner 1987; Abdel-Malek 1978; Tookey 1964; Kaynak and Kothari 1984; Lall and Kumar 1981). However, other studies have found that small and medium-sized firms can be involved in exporting (Cavusgil 1976, Edmunds and Khoury 1986, Malzehzadeh and Nahavandi 1985) and that size may not affect a firm's interest in exporting (Ali and Swiercz 1991). In distinguishing between exporters and non-exporters vis-a-vis the size of the firm, Cavusgil (1976) concluded that size was only a significant factor where the firm was very small; however, beyond some point exporting was not correlated with size. Taken collectively, these studies imply that very small firms are not likely to engage in export activity but--beyond the very small classification--size may not be an important factor. Export Intensity On the issue of size and export intensity, most studies have found that intensity (international sales/total sales) is positively correlated with firms size (Czinkota and Johnston 1983, O'Rourke 1985, Tookey 1964). However, some studies have found either no relationship or a negative relationship, with small firms having a greater level of international intensity than large firms (Bilkey 1978, Balcome 1986, Holden 1986). Balcome's study addressed this size issue, finding no discernible relationship between size and export orientation. …