ACQUIRING INTERNATIONAL KNOWLEDGE AND EXPERIENCE: INTERNATIONALIZATION OF SMALL AND MEDIUM ENTERPRISES (SMEs)

Purpose – This paper intends to understand the importance of acquiring international knowledge and experience and its relationship in the internationalization of Small and Medium Enterprises (SMEs) in the Malaysian context. Within this scope, this study sets out to further the discussion by comparing the global orientation of SMEs in Malaysia with their di ﬀ erent levels of ﬁ rm size. In a nutshell, the study further understands the moderating e ﬀ ect of ﬁ rm size between the relationship of international knowledge and experience, and internationalization of SMEs. Design/Methodology/Approach – The study is based on literature review in the areas of SMEs internationalization, international knowledge and experience, and the ﬁ rm size. The data was collected using a survey instrument among 300 internationalized enterprises located in the northern region of Malaysia. Findings – The results suggest that those ﬁ rms that acquire international knowledge and experience have no signi ﬁ cant relationship with ﬁ rm internationalization. However, when ﬁ rm size is used as a moderating factor, acquiring international knowledge and experience shows some importance for internationalization of ﬁ rms. Interestingly, international knowledge and experience are important for relatively smaller ﬁ rms. In other words, ﬁ rm size is signi ﬁ cant when relatively smaller SMEs acquire international knowledge and experience. It poses some implications for managers and policy makers. Originality/Value – This study explores the use of the index of internationalization to measure the internationalization of SMEs in Malaysia. the independent The probability plot charts also show a normal distribution where the points cluster around a straight The mean is equal to zero and the standard deviation than one which a normal distribution of the


Introduction
A highly-skilled human capital possessing international knowledge and experience is an undeniable requirement for sustainable economy at the macro level. The predicament is that the higher the liberalization of the industrialization, the higher is the importance for the SMEs to acquire such continuous learning to sustain their competitiveness in the international market. It can be stated that the gains to a country from the internationalization of SMEs can be very substantial as a result of the acquisition of international knowledge and experience.
The importance of international knowledge and experience has received considerable att ention in the last few years. Despite this att ention, and the creation of knowledge-management departments in many companies, including SMEs, the depth and intensity of that knowledge and experience still has a long way to go. Many have argued that we are in a knowledge economy in which intellectual capital is very crucial and has to be given equal importance as the other factors of production.
In the last two decades, the intensity of research on SMEs has generated some interesting research issues such as international entrepreneurship and international new ventures or global new ventures. These researches reveal that fi rms which have been described as "born global" or "international new ventures," have a strong international focus from their inception (Bell, McNaughton, Young & Crick, 2003;Coviello, 2006;Oviatt & McDougall, 2005). The eff ort of adopting international perspectives in the short-term and long-term strategies among the SMEs began as early as the 1980s (Tesar & Moini, 1998).
Further studies by Melia, Boulard, and Peinado (2007) show the importance of entrepreneurial orientation and international commitment in making international ventures successful. International corporate entrepreneurship emerges as a new perspective in the study of fi rm internationalization. This new perspective is mainly characterized by the extent of emphasis on international knowledge and experience by entrepreneurs. The lack of international entrepreneurship orientation will add on to the list of disadvantages for SMEs that were listed by Aldrich and Auster (1986) for SMEs marching towards internationalization.

Objective of the Study
Broadly conceived, the criticality of acquiring international knowledge and experience is realized by the SMEs' strategic leaders. The att ributes of knowledge and experience become clearer with the conversion of the resources into valuable business opportunities in the international market. For example, the present economic problems in the world need to be well understood by the SMEs before embarking on the global business operation.
In this paper, we aim to study the importance of international knowledge and experience to SME internationalization and how the size of the SMEs moderates that relationship for greater internationalization eff ort. The contribution of this study is twofold. First, it reveals to policy makers the role and importance of international knowledge and experience and secondly, it att empts to understand the role of size in the adoption of internationalization. Basically, the objective of this study can be outlined as the following: (1) To understand the relationship between international knowledge and experience and internationalization.
To understand the moderating of fi rm size between international knowledge and experience and internationalization.

Internationalization of Small and Medium Enterprises in Malaysia
Research interest in the SMEs in Malaysia has witnessed a signifi cant growth over the years. Why has it become more important in the last two decades? Hashim (2000b) acknowledged the growing number of SMEs in Malaysia and its contribution to the economy. MITI expects the SME sector to contribute more in the period of 2000 and 2020. The SMEs are expected to contribute 50 per cent of the gross domestic product (GDP) in 2020 (Hashim, 2000b). They provide a lot of job opportunities to locals and become major players to determine the pricing of the raw materials. They defi nitely have a lot of impact and eff ect on Porter's fi ve forces of competitiveness in the industry.
SMEs in Malaysia vary in sizes and capability. Abdul Talib and Md. Salleh (1997) pointed out some critical evaluation concerning the relationship between fi rm size and att itudes toward exporting. The results demonstrated that SMEs have a stronger tendency towards exporting activities than large-sized fi rms. SMEs are also found to be actively exploring market potential in the international arena. In other words, these fi rms are looking for broader markets for their products. Obviously, all fi rms in the study believe that exporting is a desirable activity and can contribute signifi cantly to the fi rm's growth and profi t.
Another research by Zulkifl i and Jamaluddin (2000) showed that there is a lack of skills and knowledge in organizing eff ective manufacturing and business strategy development. About 42% of the SMEs that were interviewed had prioritized quality and cost as their best weapons to compete regionally. The fi ndings indicated that SMEs lacked documented strategies and proper techniques to measure performance. Most of the companies could not plan for more than fi ve years and the long-term strategies, both of which are crucial for internationalization. They commented that SMEs in Malaysia are very far behind compared to SMEs in Asian countries, such as Taiwan, Korea or Singapore, in terms of innovation in design, speed of delivery and, huge choices and customized products for customers.

International Knowledge and Experience
Do SMEs in Malaysia foster knowledge acquisition, both tacit knowledge and experiential knowledge? Knowledge and intellectual capital have become the two primary bases of core competencies and the key to superior performance. Lubit (2001) explored how companies can best nurture their knowledge resources to create competitive advantage. To provide sustained competitive advantage, one needs knowledge that is diffi cult for outsiders to copy as well as the ability to rapidly develop new knowledge. He outlined two paths by which companies could use knowledge to create sustained competitive advantage: (a) tacit knowledge is knowledge that other companies fi nd diffi cult to copy when it spreads internally, and (b) companies can create superior knowledge management capabilities and foster on-going innovation. Burpitt and Rondinelli's (2000) study on 138 small fi rms with exporting experience in North Carolina found that fi rms that strongly value learning from international experience are more likely to continue exporting. Small fi rms that value the opportunity to develop new skills, technology and organizational capabilities tend to be involved in internationalization even when initial fi nancial returns are disappointing. The resources of knowledge and skills can either be acquired by hiring managers with knowledge and skills in international markets or developed through training and experience. Bradley (1999) posited that lack of knowledge with respect to foreign markets and operations can be an important determinant to the lack of development of international operations. As a rule, knowledge and learning will be acquired through operating abroad over a period of time. Besides that, Reuber and Fischer (1997) examined the role of the management team's international experience as a mechanism for the internationalization of Canadian SMEs in the software industry.
The results showed that internationally experienced management teams are viewed as a resource that infl uences SMEs to engage in international businesses. They encourage fi rms to develop foreign strategic partners and delay less in obtaining foreign sales after start-up.
Many researchers agree that wider experience is closely linked to greater success in the organizations. This is shown in the study involving 51 entrepreneurs in SMEs in Kuala Lumpur to ascertain the usefulness of government-supported programmes to nurture SMEs in Malaysia (Abdullah, 1997). The research results showed that owners who are more experienced achieve higher performance in terms of profi t, capital and employment. In this study, internal knowledge and experience refer to knowledge and experience about foreign markets with regards to the products manufactured in the fi rm.

Firm Size
While it is important to record the phenomenal growth of the Malaysian economy a decade ago, the sustainability of the economy much depends on the growth of the SMEs which can be measured through their growing size year by year. Only a handful of empirical studies have investigated how size has helped SMEs to internationalize, especially in the Malaysian environment. Reuber and Fischer's (1997) research on SME internationalization resulted in fi ndings that neither fi rm size nor fi rm age, directly and signifi cantly, related to internationalization. However, fi rm size is positively and signifi cantly correlated to the measure of the team's international selling experience which shows that larger SMEs are more likely to have teams with international selling experience.
In Canada, examining fourteen thousand manufactures, Calof (1994) examined the direct and indirect eff ects of fi rm size on export behaviour by focusing on three dimensions of the export behaviour: their propensity to export, countries they exported to and export att itudes. The results showed that fi rm size is positively related to all dimensions of export behaviour. Nevertheless, its importance is limited as the degree of variance explained by size is very small. In earlier studies, Cavusgil (1976Cavusgil ( , 1984 found that when fi rm size is measured by the number of employees, no relationship is found with export behaviour, but a signifi cant relationship exists when size is measured by annual sales. A fi rm can be considered small in two diff erent but related ways; in terms of sheer organizational size or in terms of its industry market share. Although size and market share are conceptually diff erent, they are correlated empirically. Firm size has long been considered one of the most signifi cant contingency variables in macro-organizational studies and its relationship with other important constructs, such as structure (Singh, 1986).
The study by Cavusgil and Nevin (1981) showed a positive relationship between fi rm size and export activity but another study by Cavusgil (1984) illustrated that size does not infl uence export activity except for small-sized fi rms. Besides that, Bonaccorsi (1992) studied the relationship between size and export behaviour in 8,810 Italian companies and showed that fi rm size is positively associated with propensity to export and negatively associated with export intensity. In this study, fi rm size referred to annual sales turnover of the fi rm.
Therefore, the following hypotheses will test the relationship between international knowledge and experience, size and internationalization: H1: International knowledge and experience has a positive relationship with internationalization.
H2: Firm size moderates the relationship between international knowledge and experience, and internationalization.

Research Framework
Based on the literature review discussed above, the research framework of this study is depicted in Figure 1.0. The independent variable is international knowledge and experience (IKE), the moderating variable is fi rm size (FS) and the dependent variable is internationalization (I). The research framework shows both hypotheses; H1 and H2 which will be tested in the following sections.

Sample
Firms to be contacted were identifi ed from the registered list of companies in the Federation of Manufacturing Companies (FMM) directory and the Perlis Labour Department. FMM was used to locate fi rms in Pulau Pinang, Kedah and Perak, whereas, the Perlis Labour Department was used to fi nd fi rms in Perlis since the FMM directory has a limited number of fi rms from Perlis. The FMM directory was used since it consolidates the list of manufacturing fi rms and provides easy access through CD ROM which is helpful for sample selection through the stratifi ed random sampling method. The total registered SMEs from both sources were 1,363 who meet the requirements of the SMEs.
This study used SMEs in Perak, Pulau Pinang, Kedah and Perlis as a sampling population. Probability sampling was used as the sampling design. In the probability sampling design, the stratifi ed random sampling process was applied to choose the sample. The sample was from manufacturing companies. Manufacturing companies were considered appropriate for this study for two reasons. First, the manufacturing industry is one of the major contributors to the economy. Secondly, the manufacturing industry is the most vulnerable to globalization.

H1
Stratifi ed random sampling, as its name implies, involves a process of stratifi cation or segregation, followed by a random selection of subjects from each stratum. In this study, the population of 1,363 SMEs was segregated based on the combination of criteria such as the number of employees being not more than 150, operating for a minimum of three years, established as of Malaysian origin and have been involved in exporting activities. Based on these criteria, a total of 300 SMEs were selected from the total of 1,363 SMEs. Since only 300 SMEs qualifi ed with the criteria, no random selection was used instead. All the selected 300 SMEs were used as the sample in this study.

Design and Procedure
The primary data were collected from top executives of SMEs who assumed the role of key informants through a mail questionnaire.
The unit of analysis in this study was the individual SME. The respondents (i.e., executives, CEOs and upper-level managers with a strategic responsibility for their fi rms) were identifi ed on the basis of their job titles and positions within the company. They were assumed to be knowledgeable and familiar with the operations related to the issues under investigation. The questionnaires were sent through post. Regression analysis was used to test the hypothesis.

Measures
Internationalization is measured as an index. Since some international business researchers have expressed that a multi-dimensional measure of internationalization captures a fi rm's international orientation more completely than the single-item foreign sales/total sales ratio (George, Wiklund & Zahra, 2005;Reuber & Fischer, 1997;Sullivan, 1994), the author has developed an index to measure SMEs' internationalization. Selected internationalization variables were put into this index following a factor analysis which showed that these variables fall into one factor. The index was named the index of internationalization (IOI).
Many studies have used the percentage of sales and profi ts from international sources as a bett er way to measure internationalization. Almost all the literature uses these variables to measure internationalization because they refl ect instantaneously the amount of export sales and profi t from export businesses. Approximately 40 per cent of the SMEs in this study achieved 11-20 per cent of their sales and profi t from international sources. Therefore, a relatively higher weightage of 30 each was given for both constructs.
Next, the number of countries a fi rm exports to and the total overseas subsidiaries and joint ventures are given a relatively a smaller weightage of 15 each. Approximately 75 per cent of the SMEs in this study export to less than 10 countries while 60 per cent of the SMEs have less than three subsidiaries or joint ventures. Therefore, it is appropriate to give a smaller weightage for both variables. The lowest weightage of 10 is given to the duration a fi rm spends in international businesses.
Consistent with previous international entrepreneurship research (Eriksson, Johanson, Majkgard & Sharma, 1997), the current study will measure international knowledge and experience using the following constructs: ( There is continuous argument regarding the choice of the correct measurement for size. In some studies, the number of employees was used as the measure (Bilkey & Tesar, 1977;Cavusgil & Naor, 1987), while some researches have used sales levels of the fi rm (Hester, 1985;Holden, 1986). In this study, the average sales for the last fi ve years have been used to measure size as they appear to be most relevant in the review of descriptive statistics of this study. Based on the review of research by Calof (1994), researchers prefer to use either sales or number of employees to measure size. But, sales was showing signifi cant fi ndings related to the export behaviour of the fi rms. Therefore, this study measured size by using the average sales for the past fi ve years.
Normality of this study's variables was established by evaluating the data distributions for skewness and kurtosis. Based on the results of these tests, the histograms for the independent variables have normal distributions. The probability plot charts also show a normal distribution where the points cluster around a straight line. The mean value is equal to zero and the standard deviation more than one which shows a normal distribution of the variables.

Statistical Analysis
The statistical analysis of the research hypothesis was the hierarchical moderated regression. The signifi cance of R 2 change was used to identify the signifi cance of the model, with and without a moderator. The predictive ability of each independent variable within the block was examined based on the signifi cance level of less than fi ve per cent.

Results
A total of 300 companies were selected in this research, with a response rate of 27.0 per cent. The respondents in this research were involved in various types of industry. They were divided into two major categories involved in manufacturing, either consumer or industrial products. Companies producing industrial products made up 72.7 per cent whereas the balance of 27.3 per cent were manufacturing consumer products. The majority ( Table 1.0 shows the output of the statistical analysis using the hierarchical moderated regression analysis. There is no signifi cant relationship between international knowledge and experience, and internationalization, as shown by the signifi cance level of 0.98 at p<0.05. But, when fi rm size is used as a moderating variable, there is a signifi cant relationship between international knowledge and experience, and internationalization, as shown by the signifi cance level of 0.03 at p<0.05. It also indicates that the interactive eff ect of size is signifi cant at p<0.05. The adjusted R 2 of 13 per cent explains bett er when relatively compared without the inclusion of fi rm size where adjusted R 2 is only two per cent. This explains that fi rm size moderates the relationship between international knowledge and experience and internationalization at p<0.05. The beta value of -1.58 illustrates that the interactive eff ect of fi rm size and international knowledge and experience (IKE) on fi rm internationalization is negative with the presence of fi rm size as a moderator. This relationship will be explained further in the following section using Figure 2.0. The fi nding shows that only smaller-sized fi rms show a positive relationship between IKE and fi rm internationalization. The fi nding leads to the logical reasoning why smaller fi rms usually require IKE to support their internationalization eff ort. As most SMEs fear the risk of associating with internationalization as they need to deal with unfamiliar culture, volatile foreign exchange market, high market sensitivity, stiff er competition, and strict government regulation, information seeking from experienced fi rms and building a sound knowledge in international business becomes a crucial learning exploration for SMEs, especially the small ones. Many small fi rms in Malaysia appear to expose themselves to international trade through active participation in international trade fairs organized by government agencies, and they also seem to capitalize on the many networks of other successful international fi rms. It is also apparent that among the SMEs with "high" IKE, the small-sized fi rms appeared to have a higher score of internationalization compared to the medium-sized fi rms.
On the other hand, medium-sized fi rms show a negative relationship between IKE and fi rm internationalization. It is illustrated by a green line in Figure 2.0. When the small-sized fi rms grow to reach mediumsized level, more IKE leads to less internationalization. We are unable to explain why higher IKE seems to lead to lower internationalization among medium-sized fi rms. It is possible that for bigger fi rms (i.e., medium-sized fi rms), IKE is less important for internationalization. However, we are rather puzzled about the fi nding that indicates that IKE has a negative infl uence on internationalization for mediumsized fi rms. We think this phenomenon needs further investigation.
Since the IOI is measuring 75% of the SMEs involved in exporting activities which are in their early stage of internationalization, the IKE is very critical for the SMEs for their internationalization. But, when the fi rms mature and become bigger in size, in this case growing to medium-sized fi rms, there are other factors that could explain well the relationship with IOI instead of IKE. That triggers further investigation in future research to understand the antecedents of internationalization of medium-sized fi rms.

Discussion
There is also a strong relationship between size and internationalization. The fi ndings are consistent with the literature which showed that fi rm size has some infl uence on fi rm internationalization. It is positively and signifi cantly correlated with the measure of the team's international selling experience which shows that larger SMEs are more likely to have teams with international selling experience.
A fi rm can be considered small in two diff erent but related ways; in terms of sheer organizational size or its industry market share. Although size and market share are conceptually diff erent, empirically they are correlated. Firm size has long been considered one of the most signifi cant contingency variables in macro-organizational studies and its relationship with other important constructs such as international knowledge and experience. The dominant logic of this study is further strengthened since small fi rms need more support in terms of resources, commitment and export skills. Apart from fulfi lling this study's objectives and shedding some light on the interactive eff ect of size, the results may also provide a clue as to why the results of past studies have been mixed. Given the low amount of variance accounted for by fi rm size, past studies may have had too few observations to produce suffi cient variance to reveal statistically signifi cant diff erences. Perhaps the most important fi nding is that international knowledge and experience are contributing to the small-sized fi rms' internationalization. The importance of knowledge and experience in international activities is worth considering since it directly contributes to increasing the value of the fi rm.

Limitations
It becomes clear that the research method, particularly the moderate response rate and small sample size, lack of time series data and possible bias from multiple informants, restrict the robustness and generalizability of the conclusions. The geographical region covered by the research is limited to the northern region of West Malaysia only. The SMEs in the manufacturing sector may have shown a diff erent result for the determinants of internationalization in other parts of Malaysia. The response rate was only 27 per cent. The dispatch of the questionnaires through the post could have contributed to the moderate response rate. Although the response rate is acceptable statistically, the research fi ndings could have been more constructive if more responses had been received.

Implications and Future Research
In spite of these limitations, the fi ndings carry signifi cant potential implications for both SMEs and policy makers based upon the regional and the industry compositions of the sample. Policy makers could work with SMEs in their regions to help determine the unique capabilities and simultaneously examine foreign markets to identify those that might be interested and benefi t most from their region's products and services.
The study has att empted to use size as a moderating factor. Admitt edly it is still crude and could be improved, but a start has been made. Future research on size and internationalization needs to emphasize on size measurement construction. Is sales volume a good proxy for size? Sometimes sales volume could be very confi dential for some SMEs unless it is published in the offi cial document or released to the press. There is a signifi cant relationship between international knowledge and experience with internationalization when size is used as a moderator. The fi ndings also show that the importance of the size factor is reduced when SMEs grow. A similar impact on internationalization is indicated since the importance of size is reduced when SMEs grow.
Nevertheless, the SMEs in Malaysia have internationalized signifi cantly as shown by the index of internationalization. Almost 60 per cent of the sample scored an index of more than 60. It could be the SMEs in Malaysia and those in Western countries are diff erent in terms of their historical backgrounds. In Malaysia, SMEs can be established based on government support or individual wealth. In Western countries, SMEs have existed for a long time and evolved through major recessions. Therefore, the factors that determine internationalization can vary distinctively.
The study off ers additional implications of particular interest to researchers in this fi eld. The contributions of the model used in the current study are that it integrates previous theoretical and empirical knowledge in international businesses and adapts some components to the idiosyncrasies of the SMEs. As a result, this study brings theoretical and empirical rigour to the Malaysian SME literature, which is primarily theoretical and anecdotal.

Conclusion
The SMEs are the key drivers of the economy in most of the emerging economies. This current study is useful in determining the impact of IKE on internationalization. The government of Malaysia is expected to invest more in the development of SMEs through the Economic Transformation Programme (ETP) and the Government Transformation Programme (GTP). Upon realizing the importance of IKE, the SMEs need to fully utilize the abundance of information through these programmes in leading to success through internationalization.