Do economic freedom, business experience, and firm size affect internationalization speed? Evidence from small firms in Chile, Colombia, and Peru

Abstract

This paper focuses on SMEs from the Latin American region and aims to build on existing literature on the emergence of the institution-based view in combination with the resource-based view. We contribute to existing literature by extending the application of the aforementioned theories to firms in three under-researched countries in this region. Specifically, we contribute to the extant literature by providing empirical insights on how home country–specific resources and firm-specific resources can affect the internationalization speed of SMEs in Latin American region. In order to achieve our objectives, we empirically examine the role of economic freedom (EF), prior business/international experience, and firm size on speed of internationalization. We use a dataset of Latin American SMEs, employing Poisson and negative binomial (NB) regression techniques. Our data cover three main Latin American Pacific Rim economies—Chile, Colombia, and Peru—with similar economic specializations, geographical borders, and economic growth dynamics. We find that (1) some parts of Economic Freedom Index (EFI) accelerate the speed of internationalization, whereas other areas slow it down or have no effect. Specifically, the closer to full EF the home country is in terms of regulations and government, the shorter the time to internationalize. (2) More experienced management teams are more likely to translate their knowledge into faster international market entry, but this pays off only for larger sized SMEs in contrast to smaller ones due to complementarities between managerial resources and physical, financial, and organizational resources. (3) Finally, industry, firm location, and country destination can only weakly explain the speed of internationalization. The findings add to the literature on SME internationalization in emerging markets and point towards potential policies to stimulate growth by SMEs in these markets.