Running Head LIABILITY OF FOREIGNNESS AND ITS IMPACT ON SME

Liability Of Foreignness And Its Impact On Small And Medium Sized Enterprises

Liability Of Foreignness And Its Impact On Small And Medium Sized Enterprises

Abstract

This study examines the operations of small and medium enterprises in an effort to gain insight into the impact of cluster participation on the organisation of international activities and the generation of competitive advantages. Drawing upon the theories of international business and management, in combination with lessons from clustering and networking theories, the study examines the linkages of foreign affiliates in the media cluster of Central London, using a particular firm in this cluster as a yardstick. This examination suggests that the major factor affecting the advantages accruing to SMEs from cluster participation is the extent to which internal linkages within SMEs substitute for local cluster linkages

Table of Contents

Chapter 1 (Introduction)-------------------------------------------------------------------4

Chapter 2 (Literature Review)------------------------------------------------------------13

Chapter 3 (Research Methodology-------------------------------------------------------24

Chapter 4 (Results and Findings)---------------------------------------------------------28

Chapter 5 (Conclusion)--------------------------------------------------------------------38

Chapter 6 (Limitations of the Study)-----------------------------------------------------44

References----------------------------------------------------------------------------------- 45

Liability of Foreignness and its Impact on Small and medium sized enterprises SME's

Chapter 1

Introduction

Causal observation suggests that small and medium enterprises (SMEs) are often attracted to localised clusters and take an active role in their development and evolution (Dunning, 2000 Pp. 133). A number of studies have shown that the location decisions of SMEs are affected by the intention to gain access to the dynamics of local clusters and to benefit from externalities. embedded in particular localities (Wheeler and Mody, 1992; 57-58 Head et al., 1995; Pp. 223 Nachum, 2000 Pp. 171). Very few studies, however, have examined the implications of cluster participation for the SME's ability to create and sustain competitive advantages and to organise their activities on a global scale. Notable exceptions include (Enright 2000 Pp. 303, Nachum and Keeble 2000 Pp. 1-2, and Birkinshaw and Hood 2000 Pp. 141.)

These studies have shown that the linkages between SMEs and other members of the clusters that host them affect their strategic and organisational practices and the position of foreign affiliates within the SMEs of which they are a part. Given the growing participation of SMEs in localised clusters, there is a need to better understand the implications of such participation for the strategic and organisational practices of these enterprises. In this study, we address this need by examining the ways by which the participation of SMEs in local cluster dynamics affect the balance between advantages generated internally within the SMEs and those associated with participating in external networks in the near locality. These issues are examined by means of a comparative analysis, in which the behaviour of foreign affiliates in clusters is compared with that of indigenous firms operating in the same environment. The latter are used as the yardstick for analysis to isolate the factors that characterise all firms, regardless of ownership, from those that are specific and unique to SMEs. Comparisons between foreign and indigenous firms are often used by international business and management scholars to identify these characteristics that are distinctive of foreign ...