Making internationalisation decisions: how heuristics and biases affect the reasoning processes of leaders of small and medium-sized firms

This thesis presents an exploration of how biases stemming from the use of heuristic-based reasoning processes influence the internationalisation decisions made by the leaders of Small and Medium-Sized Enterprises (SMEs). Three types of internationalisation decisions are specifically addressed in this thesis, namely foreign market selection, entry mode and foreign market exit. The empirical context is that of Scottish SMEs from three main industries, namely Environmental and Recycling, Oil and Gas, and Textiles. Each of the case firms is involved in value-adding activities across national borders. The theoretical context is that of internationalising SMEs. The thesis draws on three main strands of the internationalisation literature: the Transaction Cost Approach, the Process Theory of Internationalisation and the International New Venture (INV) approaches. In investigating the decisional processes involved in internationalisation, the thesis takes a Bounded Rationality stance and assumes the use of Heuristics-based reasoning (Tversky and Kahneman, 1974) in internationalisation decisions. The level of analysis is the individual decision maker within the internationalising firm. The unit of analysis is the internationalisation decision, which is explored from a reasoning process perspective. A case study strategy is used. Data collection tools are semi-structured interviews and repertory grid elicitation. The data is analysed inductively through the construction of causal-cognitive maps.
Findings show that heuristics are a useful tool to explain the reasoning processes employed in internationalisation decisions. The contribution that this thesis makes to extant literature on the internationalisation of smaller firms is threefold. Firstly, the thesis outlines the processes involved in an array of internationalisation decisions (country selection, entry mode, exit decisions) underpinning the cross-national border behaviour of firms. Secondly, by observing the processes of decision-making through a cognitive lens, the thesis contributes to the emerging cognitive approach in internationalisation. Thirdly, the thesis contributes to the literature on international entrepreneurial experience by explaining how experiential and vicarious knowledge are leveraged and used in the process of internationalisation decision-making. Propositions are advanced and further research is invited to progress current understanding of the making of internationalisation decisions in SMEs.