SME Internationalization: Can SMEs Overcome Liabilities of Foreignness and Smallness Through International and Product Diversification?

We draw from dynamic capability and organisation learning literature to examine whether internationalising Small and medium enterprises (SME) can overcome their liabilities of foreignness and smallness by jointly pursuing product diversification, and two international entry strategies of exporting and FDI. We employ a Japanese sample of 1,083 firm observations over a 9-year period from 1992 to 2000 to explore this question. The results suggest that SMEs may be able to overcome these liabilities by strategically focusing on low to moderate levels of export, FDI and product diversification. This approach leads to fewer mistakes and enables advantages of learning by doing. However, there are limits to such benefits when undertaking high levels of product and international diversification.