Abstract

A greater human capital stock enables SMEs to profitably exploit international opportunities and manage the risks and complexities involved in internationalization. However, human capital is costly and SMEs need to carefully align it with their internationalization strategy, which can be a “waterfall strategy”, slowly cascading from one country to the next, or a “sprinkler strategy”, targeting multiple countries at once (Kalish et al., 1995). SMEs following a “waterfall” strategy can absorb foreign market knowledge and transform it into organizational routines. In contrast, a “sprinkler” strategy calls for human capital to substitute organizational expertise. Even in the case of a “sprinkler” strategy, there is a limit to the ability to efficiently deploy human capital (Wright et al., 2001). Hence, we propose: (H1) Greater human capital will increase the probability of survival of internationalizing SMEs; and (H2) Greater human capital is positively associated with the degree of internationalization of SMEs following a “sprinkler”, but not “waterfall” strategy. Finally we suggest that (H3) for SMEs following a “sprinkler” strategy, there is a curvilinear relationship between a firm’s human capital and its degree of internationalization.

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