In the modern day era, the concept of globalization has become the buzzword and the phenomenon which engages virtually all regions of the globe. It represents the process by which countries lift their barriers and open up their boundaries to the free circulation of commodities, services, people, capitals, but also cultural values.
In the case of Oman, the process of globalization has intensified starting with 1970, when the sultanate of Qaboos bin Said Al-Said commenced. The new sultan commenced a still ongoing process of modernization and liberalization. The country's relationships are closed with the Middle East countries and the United Kingdom, but have also developed in other directions as well.
From an economic standpoint, Oman is a middle income state, highly dependent on its oil. Still, the oil reserves are decreasing and the labor force in the country is rising. The focus on the rulers then falls on the diversification of the economy through industrialization and privatization (Central Intelligence Agency, 2012). In such a setting, more global companies are welcomed in Oman and a trend of internationalization is observed. In other words, more companies from all over the world have opened office in Oman and this raises a question regarding the impact of the phenomenon. This study then seeks to assess the impact of internationalization of the performances of the small and medium sized businesses in Oman.
2. Study characteristics
2.1. Scope of the research
The future research sets out to assess the impact of internationalization on the Omani small and medium sized businesses, and this impact will be assessed at the level of their performances.
2.2. Research questions
The research starts at the premises that the process of internationalization generates positive impacts on the performances of the Omani SMEs. In order to prove this point, the study would assess four distinctive hypotheses, as follows:
The foreign direct investments in Oman generate positive impacts upon the performances of the SMEs in Oman.
The marketing expanses registered in Oman result in beneficial impacts on the performances of the Omani SMEs.
There is a direct link between the size of the SME and its final performance levels.
The performances of the SMEs in Oman are directly influenced by the level of competence revealed by the CEO of the firm.
2.3. Significance of the study
The study hereby proposed has a dual meaning and significance. On the one hand, the study will promote the theoretical understanding and research conducted in the field of internationalization and its impacts. The study will as such research the available literature and centralize the most relevant information in a means in which it will be easily accessible. Furthermore, the study will also generate new findings which will help to further understand the dimensions of internationalization, with specific applications in Oman.
The second significance of the study is represented by the applicability of the study findings in practice. Specifically, the study will be constructed in a manner in which it will be accessible to the interested public, meaning that the managers in Oman, as well as the foreign firms interested in launching operations in the country, will be able to retrieve useful information.
3. Literature review
The issue of the impact of internationalization on the small and medium sized companies in Oman is a niche subject, with the literature discussing it being restricted. In a wider context, the process of internationalization is assimilated with positive impacts on the performances of the SMEs in developing countries. Ashish Hajela and M. Akbar for instance, conducted a similar study in India and found that the process of internationalization materialized in a wider access of the SMEs to new knowledge and expertise, which, in turn, made the SMEs more competitive within the international market place.
The authors nevertheless found that the small and medium sized enterprises had to themselves be engaged in the process of internationalization in order to generate these benefits. In other words, the SMEs had to be actively involved in international operations, or they had to be in direct relationship with international firms entering the local community, such as being recipients of foreign direct investments.
At the specific level of FDIs, Lu and Beamish (2001) found that the initial receipt of FDI by small and medium sized firms materialized in lower levels of profitability for the firms, due to the need to engage the resources in investments. In the medium and longer term however, the profitability of the SMEs increased. The two authors also integrated a new dimension in the discussion, namely the role of exports. Lu and Beamish (2001) as such found that the profitability of the firm is increased in the context of high foreign direct investments, coupled with low levels of exports; in a context of high FDIs, coupled with high export levels, the organizational profitability of the SME was decreased.
Also relative to the foreign direct investments, Hajela and Akbar found that the larger the amount of foreign firms in a company's capital, the larger its return on assets, concluding as such that FDIs do generate a positive impact on organizational profitability. Regarding the link between marketing expenses and SME performance, the authors found that marketing expenses do indeed lead to higher sales volumes, but mostly for large size and established firms, which have the ability to create economies of scale. In the context of the small and medium sized firms assessed in India, this hypothesis has not been proven.
Then, regarding the link between SME size and performances, Hajela and Akbar also found that that this hypothesis is only proved in the context of large size companies, which reveal scale economies; for SMEs, the link was not proven. Last, regarding the competence and skills of the managerial team, the two authors found that this hypothesis could neither be proven, unless in the context of micro enterprises. As the company grew however, its performance became sensitive to other elements.
"SMEs are essentially entrepreneurial ventures and an entrepreneur's profile affects firm performance (Storey, (1994). However, as the firm grows and diversifies there is also an increase in the monitoring cost and the agency cost, which tends to absorb away the positive effect of managerial competence" (Hajela and Akbar).
The findings retrieved by Hajela and Akbar are useful as they follow the same hypothetical pattern as the one proposed by the future study. Nevertheless, its analysis is conducted in the context of Indian firms, which are characterized by national dimensions, and as such different from the ones in Oman. In this region for instance, most SMEs are small and individual constructions that have ambitions of becoming firms (). In other words, they are mostly starting out SMEs, which are sensitive to countless issues and often characterized by fearful owners. The government nevertheless developed partnerships with the private sector to support the development of the SME sector.
"In a bid to encourage the SMEs in the Sultanate, the government along with some private bodies accorded special attention to the SMEs sector. The collective efforts made by the government and private establishments are aimed at helping the SME sector to play its key role in the country's economic development. Financial loans are offered to fund the SMEs and necessary business consultation services are offered as well to provide any relevant solution to the major challenges faced by the SME sector" (Oman Daily, 2011).
In Oman, most of the internationalization processes are conducted through foreign direct investments, as the country is not well engaged in processes of outsourcing and externalizations. Due to this shortage, the small and medium sized firms often face capital shortages, which can only be addressed through borrowing. In such a setting, the banks are now approaching the Omani SMEs with lending opportunities (Oxford Business Group, 2009). Aside from the lack of funding, the Omani SME sector is also characterized by a lack of expertise (Oxford Business Group, 2011).
In order to attract new investments in the country, and through these also stimulate the development of the SME sector, the Omani government has issued some incentives, such as the ones below:
Exemption from the payment of taxes for a duration of five years to the companies which contribute to the economy of Oman
The allowance of foreign investors to hold 49 per cent of equity, with the possibility to increase this share in specific conditions
The promotion of clear and transparent legislation to regulate international investments
The commitment to economic diversification, coupled with economic stability and a stable inflation rate of approximately 1 per cent since 1992
Stability of prices and exchange rates, coupled with the possibility to access interest free long term loans
Exemptions on imports (Oman Net).
Overall, it is observed that internationalization can lead to some positive impacts among small and medium sized enterprises, yet a generalization of these impacts is impossible to complete. A most notable point is raised by Katsikeas (2000), who states out that the members of the academic community have not yet devised clear tools to measuring the impact of internationalization on the small and medium sized businesses. In such a setting then, all the opinions presented so far are inspired by the analysis of specific situations and they are applicable in the context of the respective situations. This final finding further supports the need for continued research and points to the validity of conducting the future direct study to assess the impact of internationalization on the Omani SMEs.
4. Methodology
As it has been mentioned in the second section of the research proposal, the future study will revolve around the analysis of four initial hypotheses, with the scope of proving or disproving them. In such a setting, the approach to generating the necessary results will be represented by a triangulation of qualitative and quantitative methods.
The process of triangulation virtually refers to the combination of the qualitative and quantitative approaches with the scope of maximizing the advantages of both and limiting their shortages. The qualitative approach for instance is based on observations of the phenomenon and the drawing of conclusions; the results cannot however be extrapolated as they only represent the phenomenon in the restricted context in which it was analyzed. The quantitative method, on the other hand, is based on facts and figures which assess the information in a more objective manner; it as such leads to the formulation of results which can be extrapolated to explain the phenomenon within the context of the larger community.
The future study will then combine qualitative and quantitative methods; it will observe the phenomenon as it unfolds and it will also use quantitative tools to assess it and generate findings. In a more specific formulation, the usage of the methods will be reflected as follows:
The qualitative method will be employed in the collection of data from secondary sources, such as books, journal articles and so on.
The qualitative method will be utilized to collect data from primary sources. At this level, a questionnaire will be constructed and it will be issued upon 20 SMEs in Oman in order to assess their perceived impacts of internationalization.
The qualitative and quantitative methods will both be employed to assess the data collected with the aid of the questionnaires and to retrieve valid results.
The method hereby described is rigorous as it combines two reliable tools of data collection and processing, rather than only employing a single one. The results to be retrieved will as such be objective and unbiased and the final study will be reliable and valid.
5. Ethical issues
The future study would normally be conducted in a straightforward manner, through the collection of the secondary data from secondary sources. Challenges might however be encountered at the level of the primary data collection. At this level, it is recognized that the primary data will be solicited from small and medium size companies in Oman. These institutions are for profit business agents, continually engaged in profit generation efforts. Their time and resources to allocate to research efforts are limited.
Given this situation then, it will be necessary to convince the SMEs to participate in the study and this is where ethical issues could be raised. For instance, the researcher will first approach small and medium size businesses with which a previous relationship exists, such as the research themselves have been employed there or had collaborated with the firm; where the manager is an acquaintance; where a family member is employed and could persuade the manager and so on.
The scope of this first approach is that of convincing some firms to participate in the study. With these local SMEs already agreeing to participate, the researcher will approach other businesses and will explain the need for the study and its benefits. Furthermore, they will argue that some firms have already agreed to participate in order to support the advancement of the SME community. This argument will represent a trick, but will nevertheless be accepted.
Still, the researcher will not resort to other means of persuading the SMEs to participate in the study. Their participation has to be agreed and accepted without promises of benefits. The researcher will nevertheless, promise to make the study findings available to the SMEs agreeing to participate, and this will further increase the satisfaction of the local Omani managers.
6. Limitations of the study
The study to be conducted in the future will be characterized by a series of limitations, one of the more notable of them being the usage of a limited sample of SMEs in Oman. Specifically, as it has been mentioned before, the study will be conducted through the analysis of the impact of internationalization on 20 small and medium sized companies in Oman. These firms will be selected based on criteria of relevance, but the results will faithfully reflect their own situations. In other words, the limitation is represented by the fact that the study will be unable to fully explain the impact of internationalization on all SMEs in Oman.
Then, the second notable limitation is represented by the fact that the qualitative study conducted in the research is heavily based on the secondary sources. Nevertheless, this shortage is addressed through the integration of data from reliable sources, coupled with the employment of quantitative research.
Finally, the third limitation of the future study is represented by its inability to fully respond to all questions linked to the process of internationalization and its impact on the small and medium sized companies in developing countries. This limitation is nevertheless particular to all research studies, which find it impossible to address all issues linked to a selected topic. The future study will address this limitation by pointing out some notable issues linked to the studied topic and proposing them as future research topics.
7. Conclusions
In a rapidly changing world, the process of globalization gains more momentum. Within the business community, the particular dimension of globalization is represented by internationalization, which has yet to be fully defined by the literature, but which is understood as the activity of economic agents to operate in other global regions.
Oman is a medium income economy, heavily reliant on its oil operations, which nevertheless face depleting resources. The country's focus now falls on the diversification of its economic sectors through industrialization and privatization. The sultanate as such seeks to attract new investors and welcomes foreign direct investments. The process of internationalization has as such been present in Oman too and a question is being raised in terms of its impact on the small and medium size enterprises in the country.
The future study will start at the premises that the process of internationalization has generated positive impacts upon the performances of local SMEs, and to prove this point, it will assess four distinctive hypotheses, as follows:
The foreign direct investments in Oman generate positive impacts upon the performances of the SMEs in Oman.
The marketing expanses registered in Oman result in beneficial impacts on the performances of the Omani SMEs.
There is a direct link between the size of the SME and its final performance levels.
The performances of the SMEs in Oman are directly influenced by the level of competence revealed by the CEO of the firm.
The hypotheses will be approached through a methodology of qualitative and quantitative research triangulation. A sample of Omani SMEs will be constructed and specific data will be collected and analyzed in order to generate reliable findings. The study is expected to confirm the four hypotheses and to further support the practical and academic communities in advancing research and practice in regard to internationalization and SMEs.
