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Globalization of Markets and Behaviour of Manufacturing SMEs*Pierre-André Julien
Over the past few years, it has become increasingly difficult to discuss the development of SMEs without making a link to the globalization of markets and thus of the economy. The question may even arise as to whether this globalization, a significant portion of which appears to be linked to the strengthening and expansion of multinationals, will constrain small businesses, which are nevertheless at the origin of most job creation in most industrialized countries and of the industrial restructuring of a number of their regions over the past 15 or 20 years. This globalization is partially explained by the more stringent application and the broadening of the of GATT rules or those of the future International Trade Organization, by the firming-up or creation of free trade areas, and above all, by the extension of foreign investments and agreements of all kinds among businesses in many countries. It is being accelerated by lower transportation and communication costs, and by pressure from new international competitors, particularly newly industrialized Asian countries. This globalization of the economy, unlike the traditional trend toward internationalization, is first manifested by the broadening of exchanges of goods and services of all kinds, particularly in developing countries.1 A significant portion of these exchanges involves affiliates or branches of multinational firms (intra-firm exchanges) which, with their strong development over the past decade, have accelerated what Michalet (1985) called "delocalized production".2 But many exchanges result from the formation of new alliances or agreements between businesses, as may be seen in the automotive, fine chemistry or computer industries (OECD, 1992). We are also witnessing an extension of direct or indirect foreign investment, particularly from Japan and the large EEC countries, and notably taking place in the United States; prior to 1980, it was this latter country which was the source of most investment abroad, particularly in Europe. 3 More and more, these investments are taking place in services, explaining a significant portion of the increase in exchanges in this sector and the formation of large multinational firms in the areas of finance and transportation.4, 5 Part of these exchanges of services involves the transfer of patents or duties on new products or new forms of production, thus accelerating the corporate penetration of new technologies from numerous countries. This is also fostering a rapid rise in the cross-border flow of information that is economic and technological, but also political and cultural, which could lead us to a form of the "global village" described by Marshal McCluhan in the 1970s.6 This flow is fostered in particular by new discoveries in telematics and new forms of information organization using exchanges of computerized documents. Thus, the OECD report on technology and the economy defines this new form of internationalization as a broad range of processes and relationships which have led national economies, previously relatively distinct from each other, to become intimately linked and henceforth economically interdependent to an unprecedented degree. (TEP Report, 1992: 232). The consequence of this globalization on consumer markets is a considerable increase in the variety of products from various areas of the world. Moreover, international competition is accelerating change, to the point that a product reaches the end of its life cycle increasingly quickly. This competition also considerably increases the volatility of products, owing to the fact that national goods and services enter into competition with similar or substitute goods that are frequently better-performing or less expensive. Furthermore, national businesses can not only purchase raw materials, semi-finished products or technologies in a great many countries, but they must seek new outside markets to make their products profitable, thus lengthening this life cycle, and be very innovative to compensate for their subsequent decline. However, the volume of exchanges differs from country to country. It is large for small industrialized countries close to big economies, such as the Netherlands or Portugal (whose exports represent 36.7% and 50.3% of GDP respectively), but relatively small for large countries with a massive domestic market, such as the United States or Japan (10.3% and 7.5% respectively.7) There are also other limits to this globalization, such as the segmentation of many markets with increasing revenues, fostering the extension of interstices for localized or small-series productions and development of the typical exports of certain exporter SMEs. This market segmentation is reinforced by more coherent local development and by the production of increasingly better organized local networks. Moreover, as central governments no longer have the means to respond to every request from citizens and are becoming aware of differing requirements, they are decentralizing toward local governments, which is encouraging differentiation and use of regional productions. In the same way, many international exchanges continue to elude the provision of the GATT agreement, although customs duties have dropped on average from 40% in 1945 to 4% today. This is explained by the extension of free trade agreements between two or more countries, by specific agreements (since the most favoured nation clause is decreasingly applied or limited by individual agreements such as the multi-fibre accord), by the fact that governments are resorting to all sorts of indirect measures to block imports, justifying this, for example, by the GATT "anti-dumping" clause, and finally because exchanges are much more a function of the evolution of monetary parities managed by agencies evolving in parallel with GATT. In addition to these restrictions, there are legal limitations such as patents and the monopolistic behaviour of international cartels or major multinational alliances (Contractor and Lorange, 1988; Petrella, 1989). Furthermore, international openness does not mean the extension of exchanges to every point of the compass. In many cases, these exchanges make it possible to return to traditional patterns, which had been blocked by the establishment of protectionist measures. For example, in Europe, the Common market has allowed Catalonia to increase its exchanges with Southern France and Northern Italy, as it did during the Middle Ages. In Canada, the Canada-U.S. Free Trade Agreement (now the North American Free Trade Agreement with the inclusion of Mexico) has boosted North-South exchanges to the detriment of their Canadian East-West counterparts. But multinational exchanges of all kinds are accelerating, resulting in considerably increased competition in a great many markets. In addition, the use of distribution services in one or more countries, the extension of alliances, the purchase of parts abroad and the growth of international loans are increasing interdependence between production systems and leading to unification of a number of international markets. This interdependence is such that national policies are disturbed by it, and their effectiveness is more limited. All this is increasing economic complexity. The key variable in this "complexification" of production systems is information, and thus its control. Information is becoming the "oil" of the third industrial revolution, for national governments and for businesses. It may be supposed that the SMEs in this "complexification" can be destabilized, not having the enormous resources of multinational businesses to adjust to this increased competition and interdependence. It may also be supposed that the perceived precariousness and increased rate of disappearance of small businesses, more or less in parallel with the strong creation of businesses over the past 15 or 20 years, should increase, although recent studies have shown that this precariousness was much less significant than had been thought (Philipps and Kirchoff, 1988; van der Horst, 1992; Andersen, 1993). But since it is known that many new SMEs tend to set up in more risky or new markets, the renaissance of SMEs in most industrialized countries may be threatened in this economic globalization process. To analyze this potential threat to SMEs, we must return to the range of elements characterizing the worldwide spread of globalization or the previous growth of international exchanges and apply them to small businesses in such a way as to check whether these small businesses can deal with these elements or find new advantages in them to ensure their dynamism. These elements are: 1) the accelerated lowering of customs barriers, opening new export possibilities; 2) on the other hand, the gradual disappearance of these barriers is leading to increased competition for national SMEs; 3) this competition is accentuated by diversification and rapid replacement of goods and services, limiting the lifespan of national products; 4) competition is also being affected by the increased presence of multinationals, in the manufacturing and service industries; 5) but these multinationals have the power to take control of SMEs which are worthwhile for their development, or to conclude a range of alliances with them or engage them as subcontractors; 6) on the other hand, globalization may give SMEs access to all sorts of material and immaterial resources, particularly information, or at least compel them to become systematically attentive to change in the world; and 7) finally, governments will no longer be able to help SMEs as directly as has been the case in the past, given new competition rules put in place by supra-national bodies. At this point, we shall first present an overview of the general status of SMEs vis-à-vis increased competition due to lowered customs barriers and new import-export possibilities. We shall be using the results of surveys conducted on this topic, particularly in Quebec. Then we shall attempt to define an analytical framework to assist us in differentiating between various types of behaviour by SMEs depending on their level of involvement in this globalization of markets. This will be followed by an explanation of this typology, using the results of a number of surveys or studies of recent cases. Finally, in conclusion, we shall return to the elements of globalization, reviewing the factors supporting, encouraging or limiting SMEs with respect to this trend.
1. SMEs and Globalization: A General Analysis A possible preliminary general response to the apparent threats to SMEs posed by the globalization of markets is a study of the evolution of their competitiveness compared to large businesses and foreign competition. An attempt can also be made to show that SMEs profit from globalization by making increased use of new resources offered to them by the opening of borders and, for some of them, by increasing their exports, either directly or indirectly.
1.1 SMEs and International Competition In the first case, a recent survey of a representative sample of manufacturing SMEs (234 businesses with between 3 and 250 employees) in three Quebec regions working in industries affected directly by the Canada-U.S. Free Trade Agreement shows that these businesses are relatively sensitive to increased world competition. Although few of them (less than 30%) are well-informed on this agreement and have taken specific steps, almost 70% have made recent investments, are involved in organized or sporadic R&D to set their product apart, are organizing their strategic alert increasingly well, etc.. They appear to feel that beyond the new American competition due to this agreement, they must in any case improve their competitiveness to deal with the general increase in international pressure, or seek niches or new ways of doing business to distinguish themselves more clearly from this competition and thus ensure their survival and development (Julien, Joyal and Deshaies, 1993). This study is confirmed by another survey in Quebec of 408 manufacturing SMEs with respect to their growing use of new technologies to consolidate their competitiveness. The results of this study show that use of at least one computerized or "leading-edge" technology increased from approximately 13% in 1986 to over 50% in 1992 (Julien and Carrière, 1993).
So although over 80% of large businesses used computerized manufacturing systems, this figure has now exceeded 60% in SMEs with more than 20 employees, which is relatively comparable to what is happening elsewhere (Statcan, 1991; Scarlatti, 1991). This evolution relativizes the concept of SME lag vis-à-vis large businesses as regards the level of modernization of production processes to deal with increased international competition, all the more since not all SMEs need to do so. As stated above, market segmentation and the extension of interstices have opened other markets for cottage industries or small-series productions, which most frequently do not require complex technology. There are all sorts of SMEs, some of which limit themselves to typical markets, work in very specific niches, and base their competition on systematic product innovation or a technology they have created themselves; others work as subcontractors on orders where time and proximity are very important, etc.. For example, our studies show that in the tooling plant industry, 14.5% of SMEs do not use any generic or specific technology; they survive because they can respond in a few hours with parts repairs for broken machinery, or because they are located in remote regions. Other analyses point out that SMEs rely on a number of types of advantages to improve their competitiveness or at least to set themselves apart from the competition. For example, as regards innovative capability, increasing numbers of studies show that small businesses, despite much lower direct expenditures, achieve many more radical innovations than large businesses (Mansfield, 1981; Acs and Audretsch, 1988), to the contrary of what was thought a short while ago. Other research indicates that over 50% of manufacturing SMEs regularly innovate, in organized or sporadic fashion, i.e. not much less than large businesses (Archibugi and Cesaretto, 1989; Bernard and Torre, 1994). Our own survey data (Julien and Carrière, 1992) show that this rate exceeds 40%, except for the automotive parts and electrical and electronic equipment industries. In the same line, almost 60% of medium-size firms train their employees. A recent Canadian study concluded that 57% of firms provide computer training; in total, this training runs an average of 39 hours per year (CLMPC, 1993). Another survey in Quebec showed that a third of businesses were involved in Total Quality Control (Banque de développement du Canada, 1992). These Quebec and Canadian data pointing out that the competitiveness of SMEs in their specific market is not significantly lower than that of large businesses is confirmed by a recent EUROSTAT analysis (OEPME, 1994). This study compared the work productivity of SMEs in manufacturing industries where they are dominant compared to those where large businesses were the most important. As can be seen in Table 1, the results show that this SME productivity stands up well to comparison with that of large businesses, with an index of 91 as compared to 96 for large businesses in manufacturing industries (the cost of work per employee was relatively the same). This comparison is much more unfavourable in the case of services, although here again comparison is difficult, since small businesses most frequently offer services, which are very different from those provided by large businesses. This capability is somewhat confirmed by large businesses' increasingly systematic use of SMEs' particular flexibility to restore or improve their own profitability. This large business trend toward "externalization" is not limited to production activities. Many large businesses entrust their tertiary activities, such as computers, maintenance of premises, guard service, etc., to small firms.
1.2 SMEs and Imports One way of profiting from globalization is to procure supplies at lower cost, in developing countries for example, to purchase foreign patents so as to set oneself apart more clearly in one's own markets, or to obtain all sorts of information so as to position oneself in new niches (Brown and Butler, 1993). In most countries, data on imports particularly involving SMEs are not available. It may however be assumed that SMEs import much less than large businesses. For example, by making a link between industries in which SMEs are a majority and general import data by industry, as in Graph 1 for Quebec, it may be seen that industries where jobs come primarily from SMEs (lower right of the graph) import much less than those dominated by large businesses. This situation is tending to change however, as can be seen with the upward arrows indicating the evolution between 1982 (or 1981-83) and 1989 (1989-91). Moreover, some more modern industries import a great deal, such as capital goods (No. 31 in the Standard Industrial Classification), miscellaneous industries (39) and leather industries (17).
Figure 1 Penetration Rates of Foreign Products in the Canadian Market and Significance of SMEs By Industry, 1981-19918
Source: P.A. Julien and M. Morin (1996) ‘Mondialisation de l'économie et PME québécoises’, Les Presses de l'Université du Québec, Québec, p. 100.
1.3 SMEs and Exports On the other hand, as regards exports, much more specific data are available on the number of SMEs which export and on their share in total exports per country. Here again however, it is observed that on average, small businesses export less than large ones. But this concept of a negative relationship between size and export capability must be balanced. For example, although Hirsch and Aden (1974) or Cavesgill and Nevin (1981) conclude that the larger the business, the more it exports, Elfeld (1986), Holden (1986) or Ali and Swiercz (1991) show that this variable is insignificant or unclear. There does appear to be a certain minimum size threshold for export capability; subsequently, size seems to be increasingly less significant. In our 1992 survey, we assessed this threshold to be around 40 employees (Julien, Joyal and Deshaies, 1993). This threshold would make it possible to have the minimum resources for a successful globalization strategy, which would explain contradictory conclusions depending on whether the sample includes more medium-size than small businesses or involves industries where SMEs export less. Generally speaking in OECD countries, exports by traditional or intensive labour industries, such as the leather, milled wood and furniture industries, are dominated by SMEs (particularly in Scandinavia). But there are also more modern industries, such as the metal products, machinery and transportation products industries in Germany, where exporter SMEs are a notable presence (OECD, 1994). A second reason would arise from the fact that certain samples could include primarily "professional" exporter SMEs, as we shall discuss below. However, these data do not show everything. The exported production share of most exporter SMEs is relatively low (under 20%). This share, or even the number of SMEs, may vary depending on national and international circumstances or fluctuations in monetary parities, etc.. For example, Japanese SME exports have strongly decreased over the past few years owing to the significant rise in the value of the yen. Other data show SME involvement in exports increasing (Marchini, 1993). In Quebec, although the SME share in total exports dropped for almost all industries except metallic products, machinery and miscellaneous industries from 1982 to 1989, the same did not hold for SMEs that were already exporting at the time; their share in total deliveries rose from 10.9% in 1980 to 11.8% in 1984 and 12.3% in 1989. Very recent data would appear to show that this percentage now exceeds 18%. Similarly, the share of exporter SMEs in total shipments to the United States, the primary international destination of Quebec businesses, increased still more, from 12.6% in 1982 to 14.1% in 1989 (Julien and Morin, 1996).9 This appears to be the case elsewhere as well. In Denmark, exporter SMEs (with fewer than 200 employees) saw their international sales increase by 29.5% between 1986 and 1990, compared to a figure of 17.8% for exporter firms with over 500 employees. In Greece, from 1983 to 1991, the increase in exports by small firms with fewer than 50 employees was 7% per year on average, compared to 4% for firms with over 100 employees (OECD, 1994). This involvement could accelerate if every SME wishing to export acted on this wish, as our survey on SMEs and the Canada-U.S. Free Trade Agreement showed. In this survey, we attempted to evaluate which of these firms had close to the same characteristics as those, which were already exporting. We found that 37.1% of these SMEs (or 10.7% overall) had these characteristics; the survey also made it possible to add to this number 2% of businesses which did not manifest any interest in exports but had these characteristics. In total in Quebec, almost 18% of manufacturing SMEs are already exporting, and approximately 13% would be capable of exporting, for a possible total of 31%.
1.4 Indirect Imports and Exports This analysis of SME imports and exports is, however, not very satisfactory, nor does it take into account the characteristics of the SME world compared to big business. As Grandinetti and Rullani (1994) observed, many SMEs participate indirectly in business imports upstream and business exports downstream, owing to the fact that they are part of a value chain oriented toward international exchanges, or because they are part of an internationally open business network. There are also a number of subcontractors working for large export firms. Since over 20% of manufacturing SMEs with 5 or more employees do subcontracting, it may be assumed that the percentage of SMEs exporting directly and indirectly is higher than data can show.
2. An SME Typology Dealing with Globalisation This way of looking at SMEs vis-à-vis globalization in their direct and indirect behaviours can enable us to construct a typology of SMEs in addition to those that are positioning themselves to deal more effectively with competition and those that import or export or both, a whole group of small businesses which are increasingly becoming part of international exchanges by forming associations or working for large businesses which are resolutely focused on the international scene. This typology is adapted from an approach by Fuguet et al. (1986) and Torrès (1994), taking into account not only market location (local to international, including regional and national), but also the location of resources obtained from a range of markets, either close or increasingly international (termed "operating space"). Torrès, defining SMEs in terms of their globalization level, distinguishes between four groups. The first involves local (or regional, or national) SMEs which restrict themselves to national resources to ensure their production and which distribute this production within a relatively close area (local, regional or national). The second group, termed "glocal", also includes domestic market SMEs which procure their supplies in whole or in part on the international market. The third group, international SMEs, encompasses the small exporter businesses mentioned above. The fourth group consists of SMEs, which export and import simultaneously, possibly in increasingly multiple and complex markets: these are, as Torrès sees it, the only "global" SMEs. Since our objective is not to characterize SMEs by their globalization level, but rather to locate them in terms of their response to this trend, this typology may be used slightly differently by adding to these four SME types, as illustrated in Figure 2, SMEs which operate indirectly on the world market either in a network, or in relation to other international firms. These small firms avail themselves of international resources and export indirectly while remaining in a strictly territorial location.10
This addition of "operating space" (where does the firm find its production factors, including information, to operate and develop, and where is it located?) to "market space" (where does it sell partially or completely?) enables us to specify five ways of dealing with market globalization, taking SME international behaviour into account. These strategies are development of sound competitiveness to deal "locally" with growing imports (type 1);11 international openness to import additional resources so as to distinguish oneself more clearly from the competition (type 2); behaviour turned toward exports (type 3); international strategy with respect to inputs (partially imported) and outputs (exports) to expand and diversify international activities (type 4); and finally, association with other businesses in networks with a range of forms to operate locally and internationally at the same time (type 5). We have located this last type in the centre of Figure 2 because it can include SMEs acting only at the local level (type 1), while indirectly receiving a range of resources including information from other international network members. Some businesses in these networks import (type 2), others export (type 3), and some do both (type 4).
3. A First Application of the Typology In contrast with Torrès' analysis, all of these strategies are "globalized". Our analysis takes into account all SMEs operating to a certain level with a strategy which is concerned about market globalization. Even if they do not import or export, they are influenced by this trend and act in terms of it. In this analysis, again using the Gartner (1988) concept and as we showed in our discussion of the SME strategic process (Chicha, Julien and Marchesnay, 1990), what concerns us here is not what these SMEs are, but what they do about market globalization. We can therefore find five types of "world" or "global" SME.
3.1 Locally Competitive SMEs In the southwest quadrant, as our survey demonstrated (Julien, Joyal and Deshaies, 1994), and excluding approximately 15% of very small firms operating in very specific markets or protected from international competition by being located in very remote regions, we find almost 26% of manufacturing SMEs which do not export but must nevertheless improve their competitiveness so as to be able to withstand increased competition, particularly from the opening of borders.12 These SMEs can operate in particularly dynamic environments. Resources procured to maintain this energy can be local or national, depending on the complexity sought (Deshaies, Julien and Joyal, 1992). It would however be surprising if these dynamic environments were internationally cut off, if only from the technological information aspect. In this regard, this type 1 is rather a case study, whereas most dynamic SMEs are part of type 2, with direct or indirect international links, at least as regards their requirement for national and international information.
3.2 SMEs Using International Resources In this second case (northwest quadrant), we find SMEs (approximately 11%) part or all of whose natural resources or semi-finished products are imported. There are many of these importers in the service industry. In traditional industries, such as leather or clothing, there are also a number of small firms, which import goods, particularly from low-wage countries, to complete their product line, being content to produce medium- or high-quality goods. Torrès (1994) studied small consulting firms specializing in a systematic search for international information to help their local clients improve their development. It is the role of many private or public technological information transfer agencies to foster the distribution of new technologies, thus improving the competitiveness of national SMEs (OECD, 1993). SMEs may find it difficult to be satisfied with purely national information; "national" informants must also surf international channels to be up-to-date, particularly from the viewpoint of R&D, which is by definition transnational.
3.3 Exporter SMEs Once obtained, international information can make it possible to become familiar with and to act in international markets, or to export. There are two major theoretical explanations for SME exports. The first arises from business growth stage theories, asserting that small businesses must pass through different stages before being able to export.13 The second involves the identification of typologies, contrasting a number of behaviour type profiles, which facilitate or constrain SMEs' export capabilities.14 The first approach has been criticized because of the difficulty involved in agreeing on the delineation of stages (Miesenbock, 1988), and because many SMEs never go beyond the first stages or jump directly to the final stages. The second is too static, failing to explain how it is possible to move from one profile to the other. It is better to define an overall framework which makes it possible to discern both firms with export capabilities and those which can move from one stage to another. The capabilities or characteristics of exporter SMEs have been relatively well analyzed (Beamish and Monroe, 1985). What these SMEs are most frequently involved in is innovation, via a somewhat organized R&D department. SMEs in medium- or high-technology sectors thus have more opportunity to export than those in low-technology sectors. Accordingly, they carry out more commercial, competitive and technological monitoring, in a relatively well organized way. They avail themselves of management and production technologies which are usually modern, if not leading-edge. And these characteristics of exporter SMEs are as much as result of the socio-psychology of their management (Kedia and Chhokar, 1985) as of the behaviour structure of the business and its competitive abilities (Léo, Monneyer and Philippe, 1990). One study which we carried out on exporter SMEs in Quebec, integrating their management behaviour, the scope of internal and external resources implemented for export purposes and the significance of marketing strategy in this regard, enabled us to classify these SMEs in three categories (Julien et al., 1997). The first category encompasses "opportunistic" SMEs, where owner-directors devote little of their firm's time and few of its resources to export activity, and above all, do not have a specific marketing strategy for the international market; their international strategy is very reactive, merely waiting for unsolicited opportunities and orders from the outside. The second category represents the above-mentioned "professional exporter" SMEs, which invest resolutely in exports, although this activity may (still) involve a small portion of their production. They develop a reflective strategy and devote a number of key resources to this area. They also apply a long-term international marketing strategy. The third category, "transitional exporter" SMEs, are small businesses which are somewhat hesitant to commit themselves more resolutely to exporting, after responding to a number of unsolicited orders, i.e. on their way out of the export market, which requires too many resources while the local or national market is poorly served. This category includes SMEs of the second type, which prefer to devote themselves to the national market while importing international resources and information. As has been said, these different categories do not depend on export shipping volumes. The southeast quadrant is populated primarily by opportunistic and transitional exporter SMEs, amounting to approximately 10% of manufacturing SMEs.
3.4 Importer and Exporter SMEs As has been said, most of the SMEs in our first category import an occasionally significant portion of their parts, then integrate these in their final product before exporting it. They must therefore procure international information with respect to both inputs and outputs to determine the evolution of markets and products and therefore of competition, both upstream and downstream. So their commercial, competitive and technological monitoring is a major component of export success for SMEs (Verhoeven, 1988; Seringhaux, 1988; Ali and Swiercz, 1991). This monitoring must be seen as part of the learning process required to ensure export strategy. This learning allows firms to acquire experience by beginning naturally, with exports to geographically and culturally close countries (Bilkey and Tesar, 1977; Ursic and Czinkota, 1984). But increasing numbers of small firms are beginning to export their creations immediately, possibly to a number of countries. Thus the progress of exporter SMEs is not always linear, although learning continues to play a significant part, in particular for the development of a sound "international" information system (Christensen, 1991). For example, two of the ten "professional exporter" firms in Quebec, after exporting to nearby states in the U.S., have begun to export to Mexico. Another has decided to directly attack a slightly more distant market, California, considering this the most difficult market and asserting that if this experiment went well, it would be easy to expand it subsequently to closer states. Finally, three of the small firms were exporting too, although on a smaller scale, to European and Asian countries. SME globalization processes are much more complex than we think. These professional exporter SMEs are even seen in the northeast quadrant, amounting to approximately 8% of manufacturing SMEs.
3.5 International SME Networks Finally, as seen above, a number of SMEs are exporting together in a value chain, or linked to firms which are major players in international markets. In the first instance, the example of industrial districts is eloquent. These districts, which can encompass thousands of small businesses in the same industry, may produce so much that they must export to a number of countries; on the other hand, these districts must import a range of resources to sustain their production and maintain their competitiveness vis-à-vis international competition. Thus in these districts, while most firms are not directly active in the international market, some, known as pivot firms, are directly linked to it either as importers of diverse raw materials or in the area of marketing and distribution to oversee and develop markets (Sengenberger, Pyke and Piore, 1990; Conti and Julien, 1993). Similar organizations are found in business networks organized into a partnership system of "intelligence" subcontracting to create a strong synergy between member firms so as to develop "world-class" products that can stand up to the competition wherever it is. Normally in these systems, only the leader firm and top-level subcontracting firms that do not work exclusively for the leader export, but even second- and third-level subcontracting SMEs participate indirectly in exports and can import while linked to the international information network in such a way as to facilitate diffuse innovation (Lecler, 1993; Julien, 1991). In the second case, small firms profit from the trend to externalization and the sales strength of large businesses while the latter benefit from the flexibility of SMEs. However, this trend can affect national SMEs positively or negatively. In some cases, a multinational setting up in a country will attract certain SMEs from its own country which are already working with it, thus increasing competition for small national businesses established in the same market and possibly forcing them into bankruptcy. Behaviour of this nature may however benefit national subcontractors that work efficiently with a large originator which is developing abroad; the latter may increase orders to its subcontractors, or encourage them to set up an affiliate close to their new plant. Everything depends on the ability of subcontractors to deal with international competition and respond to originators' requirements. Another way of operating as a network in international markets is to create alliances with other small businesses abroad. We have studied such international alliances of Quebec SMEs with firms in French-speaking African countries; their success was a function of their ability to develop information and thus exchange complementary knowledge and skills of advantage to the partners (Marcotte and Julien, 1994). Thus the centre of Figure 2 records approximately 30% of SMEs from all four quadrants, active directly and primarily indirectly on the international market.
4. Conclusion As we have said, it might be thought that the small businesses, which import and export to many markets are more "global" than the others. In a strict definition of globalization, in relation to the general activities of which we spoke in the introduction, it is true that these businesses do operate in increasingly international networks. But in a more general application of this concept, more SMEs are involved in this globalization, whether they operate in local or international markets. They must therefore position themselves with respect to this transformation of our economy in an increasingly international or global environment. This involvement is a response to the major elements of globalization. More and more SMEs are availing themselves of new material and immaterial technologies to increase their productivity. They are innovating to prolong the useful life of their products or to change these products. They are associating with large businesses or working in networks to boost their strike forces. These networks also provide them with international information to prevent them from being outpaced by change. But given the limitations of globalization, some SMEs can break away from increased competition by positioning themselves in specific niches. Globalization can offer as many opportunities for dynamic SMEs as obstacles for those that lag behind in modernizing their production processes or developing these niches which can give them at least temporary shelter from the pressures of new competition. But globalization poses new challenges for SMEs by leading them to at least partially integrate the consequent idea of global change in their strategy. The expansion of markets does not mean that only large businesses will be able to profit fully from this trend. There is no correlation between large market and large business. Also, governments are wrong to foster mergers and acquisitions, whatever the cost, to encourage the competitiveness of large national businesses. A fish that has become bigger and bigger in its pond will be eaten when it reaches the sea; it is better to teach it how to fight when it is small so that it can deal with the competition, wherever it is. The recently completed (1996) OECD study on market globalization and SMEs shows, on the one hand, that the major factors sustaining or accelerating SME globalization are as much a result of the internal dynamics of small businesses as of environmental support. In the first instance, searching for diversified growth, specific innovation-based production, and open-minded management capable of engaging the appropriate specialized resources, go a long way toward explaining the behaviour of internationally open SMEs. The case of the environment presumes effective regional consulting, funding and logistical resources to support exports. On the other hand, the internal factors constraining the globalization of SMEs are lack of experience on their part, insufficient resources and an excessive perception of risk. The major external factors are national information networks that are inadequate or poorly connected internationally, deficient complementary regional resources and assistance programs that are maladapted to SME requirements. In a number of countries, the positive factors appear to be gaining ascendance over the negative.
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Endnotes * A preliminary version of this paper was delivered at the Congrès international francophone des PME in Carthages, 2/-23 October 1993; a second version was awarded one of the two first prizes for best paper at the 39th Conference of the International Congress of Small Business in Strasbourg, 27-29 June 1994. A third version was published in English in Entrepreneurship and Regional Development 8(1), 1996, p. 57-74. This latter version was however revised to meet the requirements of this symposium. 1 [sic] For example, although export volumes increased by 7.7% annually between 1961 and 1975 between industrialized countries, compared to a figure of 3.8% between non-oil developing countries, these rates were reversed between 1976 and 1990: 5.1% for industrialized countries and 8.8% for developing countries. Source: International Monetary Fund, "World Economic Prospects, May 1993", Washington, Table 19. 2 See Tables 44 and 45 , pp. 242 and 243 of the TEP Report (1992) on the importance of inter-firm exchanges in many OECD countries. 3 Ibid p. 237. 4 See the TEP Report (1992), p. 241. 5 In this later case, for example, with the movement toward rationalization in air transportation. 6 These information transfers can however add to cacophony and an excess of information. In the same way, the "information highway", given the problems involved in creating effective information and the difficulty involved in managing cultural differences, currently more closely resembles an "information sewer" in which methods broadly surpass the quantity and especially the quality of communications travelling through it. 7 1987 data. Source: A.R. Thurik (1992). 8 Source: P.A. Julien and M. Morin (1996) ‘Mondialisation de l'économie et PME québécoises’, Les Presses de l'Université du Québec, Québec, p. 100. 9 It should be noted that almost 75% of Quebec and Canadian exports are to our powerful neighbour. 10 It must be mentioned here that in other instances, SMEs most frequently have a "national" (and therefore most frequently "local") location, unless they have a few offshore subsidiaries, as in the case of large businesses, or have developed alliances, particularly co-enterprises with foreign firms. 11 Ibid. 12 In our survey, 42 (of 134) businesses exported. They were obviously active if not proactive vis-à-vis the Free Trade Agreement. Subtracting the latter, 63% still have a dynamic strategic in response to this Agreement. 13 On growth stages and their application to SME export theories, see for example Bilkey and Tesar (1977) or Kaynak and Kothary (1980). 14 See for example Cavusgil and Naor (1987), Burton and Schlegelmilch (1987) or Amesse and Zaccour (1990).
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