Disentangling resource and mode escalation in the context of emerging markets. Evidence from a sample of manufacturing SMEs

Faced with persistently slow economic growth at home, and the progressive saturation of their traditional foreign markets, an increasing number of SMEs from Western countries are currently ramping up their internationalization efforts in emerging markets (EMs) (Kalinic and Forza, 2012;Bortoluzzi et al., 2014).According to the stage-based internationalization literature (Johanson and Vahlne, 1977;Petersen and Pedersen, 1997;Andersen, 1993), when establishing their business in foreign markets, firms (both large and small) typically follow a gradual approach to internationalization.They initially enter markets through low-commitment modes (e.g.indirect exports) and after some time, by drawing on market experience, gradually increase investment to medium and high commitment modes (such as joint ventures and other foreign direct investment (FDI modes).Another feature of this internationalization pattern is that foreign markets are entered sequentially, starting from those that are the closest in terms of psychic distance.The challenge with this stage-based model of internationalization is that it was originally conceived in a different economic context, where firms from advanced markets expanded mainly toward other advanced markets (Ruzzier et al., 2006).By contrast, we know less about smaller firms' establishment chain in EMs.How do Western SMEs approach these fast-growing markets?To what extent do they have to adapt and revise modes of operation into these markets?Within the stage-based approach to EMs, what happens after initial market entry is as important as the mode of entry itself.Indeed, there is much to learn about SMEs' managerial motivations to increase or reduce initial investment in such markets (Dalli, 1994;Brouthers, 2013).Despite this, scholars have addressed mainly the theme of SMEs initial entry decisions in EMs (Sandberg, 2013(Sandberg, , 2014;;Bortoluzzi et al., 2014) while few empirical studies have analysed how SMEs get established in EMs after their entry phase (Calof and Beamish, 1995;Swoboda et al., 2011).This paper addresses this gap.We have based our research on a sample of Italian exporting SMEs, operating across four sectors (Food, Furniture, Mechanics/ Machinery, and Textile/Clothing).This sample is suitable for the goals of our study for several reasons.First, these manufacturing firms operate in traditional sectors, less affected by the "born-global" phenomena and more inclined to follow sequential patterns of internationalization. Second, while showing a strong international orientation, Italian SMEs as with many European SMEs, have a clear preference for exporting rather than FDI or JVs, both at the time of entry and at a later stage of their foreign presence (Zucchella and Hagen, 2015).Third, in many cases SMEs' foreign operations are mediated by a local distributor providing market-specific knowledge and market access.Our research paints a comprehensive picture of manufacturing SMEs' internationalization strategies in EMs that examines two types of escalation of commitment: the first (between modes) occurs through riskier modes of operation, as typically described by the stagebased internationalization theory; the second (within modes) results in the escalation of resource commitment within the initial mode of operation.