There is a general consensus that internationalisation positively affects firm performance and as such desirable for firms in the country to embrace internationalisation since only a limited number of them engage in foreign business activities.
A 2018 Botswana Development Institute for Development Policy Analysis (BIDPA) research study titled “Impact of Internationalization on Firm Performance In Botswana” undertaken by Goitseone Khanie found that there is appositive relationship between firm performance and the degree of internationalization.
According to the paper, this implies that among other growth strategies, “internationalisation can be considered as an important strategy to improve firm performance”. The policy implication of the study results is that efforts should be made to assist firms to internationalize as a way of improving their performance.
The paper also acknowledges that globally, international trade has grown at an unprecedented rate over the years. There have been numerous international trade reforms, including the elimination of trade barriers, tariffs and quotas, which have encouraged the free movement of goods and services between countries.
Moreover, technological advancement has contributed to the development of a global market where communication is faster and easier. These developments have opened domestic markets for international competition and owing to this, domestic firm have to increasingly seek means to strengthen their capacities as well as maintain competitive advantage.
Similarly, due to the limited capacity of domestic markets, enterprises are forced to search for opportunities for growth and wealth creation by entering foreign markets and the extent to which a firm is involved in international business is termed “internationalization”.
Internationalization involves expansion of an economic activity beyond the borders of the domicile economy. Firms adopted exporting as the most common foreign market entry mode. This is because it was as the fastest and easier way to enter most common foreign markets.
According to the research study, recent studies show that “internationalization is more than just selling goods and services in foreign countries, but includes all foreign aspects of the firm’s value chain”.
Just like exporting, firms may use importing as a driver of knowledge and technology transfer across borders. Firms can also invest abroad through mergers and acquisitions, establishment of subsidiaries and selling their stake to foreign individuals.
It is reckoned that investing in foreign countries also has potential to promote organizational learning among firms. Nonetheless, “internationalization may pose challenges to the firm. Due to the extra costs of transportation, marketing and distribution in a foreign country, small and less profitable firms may find it difficult to enter a foreign market”.
Moreover, “internationalisation may exhaust the already stumpy managerial resources of small firms, since it requires a lot of synchronization”. In light of this, governments around the globe have been propelled to establish institutional frameworks that shape firm internationalisation and develop an attractive business environment.
In Botswana, “the government has been progressively promoting trade and investment as well as encouraging export development with an endeavour to encourage firms to enter foreign markets”.
The study also acknowledges that “the need for active participation in economic activities through the route of private foreign investment is highly emphasized among firms in Botswana.
“Given the conducive environment created by the government and the regularly mentioned in benefits of internationalization to the firm, it is surprising that most firms in Botswana are still reluctant to engage in international business practices”.
The World Bank 2010 Enterprise Survey reported that the percentage of firms exporting in Botswana stood at a meagre 9.6 percent, which is a clear indication that the participation of firms in the global market is low. Besides, it is only at macroeconomic level that the impact of international trade has been studied extensively in the country.
The research study laments that the impact of internationalization with particular emphasis on “firm performance remains an under-researched area. Therefore, this study is devoted to determine how engaging in international business activities affects firm performance in Botswana, with the view of drawing policy recommendations on how best to enhance the domestic business environment through foreign market penetration”.
Firms examined by the World Bank were spread across large, medium and small enterprises. Firms in the sample are also spread across manufacturing, retail and other service industries.
The data captured firms that were involved in various internationalization strategies including exporting, importing and engagement in foreign direct investment activities. Only 12 percent of the firms were involved in export activities.
Similarly, only 29 percent of the firms were engaged in import activities, with 82 percent of them involved in direct importing. Likewise, only 49 percent of firms in the sample were engaged in direct investment activities.
The paper further noted that a positive relationship infers that the benefits of internationalization outweigh the costs hence positive returns, whereas negative relationship implies that high levels of internationalization lead to negative returns.
On average, the degree of internationalization for firms in Botswana is 21.64 percent. With regard to firm size, the average number of employees for a firm is 77, with the smallest firm having no employees and the largest 3600 employees.
A breakdown of the business industry found that the majority (35 percent) of the surveyed firms operated in the retail industry, followed by other services industry (33 percent) and manufacturing industry accounting for 32 percent.
The analysis of the distribution of internationalizing firms according to the in which they operate show that most exporting firms 49 percent) are in the manufacturing industry, followed by the other-services industry (32 percent) and the retail industry at 19 percent.
Interestingly, all importing firms are in the manufacturing industry. On the other hand, firms with shares owned by foreigners mostly trade in retail industry (36 percent), followed by those in the manufacturing and other services industry with 32 percent respectively.
The study also found that firms which operate in the retail industry attained 47.22 percent higher return on sales than those which operate in the manufacturing industry. Similarly, firms which operate in other-services attained 48.16 percent higher return on sales than those in the manufacturing industry.
