Internationalization of SMEs: Analyzing institutional support in Germany

Abstract

The author applies the New Institutional Theory to analyze the implementation of non-financial business-supporting measures (the development of organizational and institutional infrastructure) as a part of German internationalization policy. The paper shows that internationalization policy priorities are based on the need to reduce SME‘s transaction costs when entering a foreign market. There are two main components of this policy: to involve SMEs in decision-making process to increase their qualitative competencies; and to stimulate priority functions of German economic agencies of business supporting. The first task is achieved through the application of the subsidiarity principle to non-profit organizations, the development of specialized market analytical centers, and state co-financing at certain stages of the association’s existence. The second task is to promote the development of the existing organizational architecture of foreign economic activity (building an institutional system based on pre-existing relationships). Specifically, federal and state ministries involve business associations and other economic actors who already have strong ties with a majority of German companies in the foreign market in working abroad. Likewise, related programs aim at reducing transaction costs for these organizations. Such activities allow accumulating the interests of national business in foreign markets and ensuring synergy in the interaction of independent economic entities with the national representations of Germany, sciences, market research institutions, and business associations.