Foreign Market Entry of Small and Medium-Sized Enterprises: The Case of Firms from New Zealand to China

Abstract

The motivations for foreign investment activities are often discussed in the literature on internationalization. Past study of motives for Foreign Direct Investment (FDI) has primarily concentrated on the activities of Multinational Enterprises (MNEs), with less emphasis on the FDI activities of Small to Medium-sized Enterprises (SMEs). SME internationalisation research to date has tended to focus on the decision to internationalise and the push and pull factors behind it. The entry mode choice of SMEs has received limited attention and most available research on the subject has focused on exporting activities as this type of entry mode requires low level of resource commitment and is popular among small firms. Studies on foreign firms in China are primarily concerned with MNEs from large and developed countries. Activities of smaller firms from small countries entering China are yet to be thoroughly researched. The present exploratory study addresses these research gaps by conducting a case study on two SMEs from New Zealand entering the Chinese market. Based on the findings of the present study, the traditional focus on firm capability emphasises experience, financial and human resource when studying the internationalisation of SMEs appears to be insufficient. For the two SMEs in question, firm capability was not important either to the decision to internationalise or to the entry mode choice. The findings of this study demonstrate that given good market opportunities SMEs invest in China due to network relationship they have build with local business. The findings also show that even though the two New Zealand firms are both very small in size and have limited experience in doing business in China they chose to directly invest in China mainly due to external factors such as market conditions, industry characteristics, and government policy. Managerial implications and suggestions for future research are discussed.