International Joint Conference - CIO-ICIEOM -IIE-AIM (IJC 2016)

San Sebastián, Spain, July 13-15, 2016

Impact of ICT use on the international

diversification of SMEs

León O1 , Igartua J 2 , Ganzarain J 3

Abstract

The advances in information and communication technologies (ICT) has given

way to a new genre of opportunities for companies, expanding their horizon to ex-
plore new markets and diversify its business across geographical borders. In this
sense, the present study analyzes the impact that the use of ICT has on the degree
of international diversification of small and medium enterprises (SMEs). From a
sample of 74 companies in the Autonomous Community of the Basque Country,
there is evidence that companies with a higher level of use of ICT have a greater
degree of international diversification.

Keywords: ICT, diversification, internationalization, SMEs

1 Introduction

The rapid and extensive development of ICT has affected the dynamics of busi-
ness competition, lifestyles, relationships with customers and technological inno-
vation. This has revolutionised the process of buying, selling and the exchange of

1Omar Alexànder Leòn Garcìa (e-mail: omar.leon@alumni.mondragon.edu)

Innovation and entrepeneurship group – Mondragon University. Loramendi, 4. Apartado 23
20500 Arrasate – Mondragon Faculty of Engineering Compensar–Unipanamericana
Fundación Universitaria., Calle 32 No. 17 – 30 Bogotá – Colombia
2JuanIgnacio Igartua (e-mail: jigartua@mondragon.edu)
Innovation and entrepeneurship group – Mondragon University. Loramendi, 4. Apartado 23
20500 Arrasate – Mondragon
3JaioneGanzarain (e-mail : jganzarain@mondragon.edu)
Innovation and entrepeneurship group – Mondragon University. Loramendi, 4. Apartado 23
20500 Arrasate – Mondragon
2

goods and services (Kim et al., 2013, Alwahaishi and Snášel, 2013), becoming a
factor that facilitates innovation that takes place in companies (Tarafdar and Gor-
don, 2007). These technologies have been discussed as a driving force for innova-
tion firms both in terms of processes and products (Tarafdar and Gordon, 2007),
because they are considered as one of the main elements that can lead to business
innovation and competitiveness (Segovia et al., 2013).

On the other hand, due to the competitiveness and the possibility of a company
remain solvent, it depends, among others things, on its ability to anticipate and re-
spond to environmental pressures. Some companies have had to rethink their
competitive strategy to adjust to their operating environment (Sánchez et al.,
2010). These adjustments have led to some companies to make the decision to di-
versify by entering new lines of business in new international scopes.

Due to this, organizations often respond by leveraging ICT to seek innovative

applications to improve or expand the scope of its products and services
(McNurlin et al., 1989). This makes clear that these technologies lead to an in-
crease in productivity by reducing costs, allowing companies to increase the quali-
ty and output of new products through its borders.

Therefore, the aim of this article is to identify the relationship between ICT and
the degree of international diversification of SMEs, with the idea of understanding
how these technologies can be an important tool for increasing business interna-
tionalization.

2 ICT and international diversification

The development of ICT, has become an essential ingredient to the survival of

the business and improves the competitiveness of enterprises, reconfiguring or
improving the activities in the value chain of an organizatio n (Wynn et al., 2013,
Porter, 2001). It has generated different changes both in the business models and
in its strategy. These changes caused by the influence of ICT, have been equally
relevant in the academic studies of recent years and they see their importance as a
link between the strategy of the company and its business processes (Bharadwaj et
al., 2013, Al-Debei and Avison, 2010).

Understanding that these technologies can allow a company to enhance its ca-
pacity to develop a work environment that encourages creativity and innovation
(Benitez et al., 2010). Those companies who do not possess the technological
skills needed to cope with continuing scientific and technological developments
are at risk of becoming trapped in routines and established practices. This limits its
 3

ability to adapt to changes in the market, limiting the development of new innova-
tive solutions and to capture new opportunities (Savino and Messeni, 2012).

It is evident that ICT leads to increased productivity by reducing costs, which

allow companies to increase the quality and output of new products (Brynjolfsson
and Hitt, 2000). In addition to this, technologies such as the Internet, are associat-
ed with an expansion of business scope and a decrease in the specialization of
business (Brews and Tucci, 2004).

Since companies can use ICT capital to coordinate their resources and capabili-
ties across different markets, this capital can facilitate the realization of economies
of scope and allow companies to operate in several markets simultaneously (Ray
et al., 2013). In addition to this, Ravichandran et al., (2009), indicate that ICT (al-
lowing for coordination and control in companies) are moderating the relationship
between international diversification and business performance.

Internationally diversified companies need more investment in information

technology in order to coordinate their assets and operations across country
borders in different international markets than their non diversified counterparts
(Roy and Sivakumar, 2007). Also, due to use of ICT, the costs of coordinating
international suppliers are being significantly reduced for buyers, while sellers are
now able to search and sustain global business buyers (Roy and Sivakumar, 2007).

Likewise, The cost-effectiveness of technology facilitates the expansion of

business activities into the international markets (Liu and Ravichandran, 2008),
because the ICT can support the multinational firm as it seeks to coordinate global
operations, diffuse innovation worldwide or provide integrated service to a global
corporate customer (Jarvenpaa and Ives, 1993). Also, ICT has been a major driver
in shaping the current configuration of modern global competition (Liu and
Ravichandran, 2008)

Sandulli et al. (2012), to analyze the impact of ICT on productivity of interna-

tional diversification, three major functional areas of the company have been iden-
tified; operations (improving product quality), acco unting and finance (imple-
menting exit controls) and sales and marketing (implementing market research).
Those diversified companies adopting ICT in these areas can have a positive im-
pact on productivity because they reduce to some extent, the high cost of coordi-
nation of diversification.

ICT investment made by companies favour the use of specific assets of the firm
through the borders of the country, which contributes to better performance of in-
ternational diversification (Chari et al., 2007). However, using the measure of
adoption and use of these technologies gives more clarity about how this resource
impacts diversification strategy. This allows for the identification of the actual use
4

of these technologies in each of the processes and the activities of the company .
(Sandulli et al., 2012).

3 Methodology

This study was developed through the implementation of a survey aimed at man-
agers of SMEs established in the Autonomous Community of the Basque Country
(CAPV) belonging to the industrial sector. The final sample consisted of 74 firms
that replied to the questionnaire presented in physical format and online during the
period September to November 2015. The variables used for the analysis can be
seen in table 1.

To measure the use of ICT (UICT) within the company, the directors were re-
quested to indicate how they consider the level of use of each of the 18 technology
tools listed. The tool list selected has been suggested by the ITU, OECD, Eurostat,
INE, Eustat and identified in other studies (Guzmán et al., 2010, Albarracín et al.,
2014). This variable consists of the arithmetic mean obtained from a five-point
likert scale in which the directors indicated the level of use of each of the technol-
ogies presented. To validate this measure the reliability of the scale is verified
through the statistical Alpha Cronbach (0.834), and KMO (0.77) indicating the va-
lidity of the scale used.

In order to measure the degree of international diversification, it is appropriate

to use a composite index (Sullivan, 1994). Through the use of two elements; the
intensity of foreign operations (ratio of foreign sales on total sales of the firm) and
their geographic scope (number of countries in which companies operate).

Table 1 Summary of analysis variables

Dependent variable
Inter_Div Degree of International diversification. Composite Index (percentage of foreign
sales and number of countries)
Explanatory variable
UICT Perception by the management of the degree of use of ICT implemented in the
enterprise on a scale of 1 to 5 (where 1 is low and 5 high)
Control
Size Number of employees in the company
Age Number of years since the constitution or initiation of activity
 5

4 Results

Below are the results of the descriptive analysis and subsequent regression analy-
sis, which are presented to confirm the correlation of the variables analysed.

4.1 Descriptive Analysis

According to the results obtained, there are slightly more companies internationally
active (56.8%) than those which are not (43.2%). The results show that most compa-
nies with international operations are active in 3 countries or less (28.6%). 16.7% of
companies are active between 4 and 7 countries. It also demonstrates that a high per-
centage of companies are active in a larger number of countries (19% between 21 and
30, 4.8% between 31 and 40 and 14.3% in over 40 countries).

The results also show that the average level of use of ICT in SMEs in the Basque
Country is 2.89 to 5.0. Likewise, figure 1 shows that the companies with interna-
tional operations in a greater number of countries present higher UICT level. In
fact, companies with activities in more than 8 countries have a mean greater than
3.10.

4 3,55
3,44 3,43
3,26 3,18
UICT mean

2,95
3 2,54

0
1-3 4-7 8 - 10 11-20 21 - 30 31 - 40 40+
Number of countries in which the company participates

Fig. UT IC mean by number of countries in which the company participates

4.2 Correlational Analysis

The study assumes that as companies have a greater use of ICT, the degree of in-
ternational diversification will also be higher. For this analysis, an analysis of cor-
relation between these two variables has been carried out. It is observed that, with
6

a significance level of 0.005 and a Pearson`s coefficient (r = 0.429), there is a lin-

ear dependence of the two variables. To analyse this correlation, the following
model has been considered using an Ordinary Least Squares (OLS) linear regres-
sion model; Inter_Div =b0 + b1UICTi+ b2Sizei + b3Agei + εi. Table 2 summariz-
es the results of this model. Variables for the size (Sizei) and age (Agei) of the
company have been included in the regression model for control purposes.

Table 2. Summary of UT IC and international diversification degree model

Model R R2 Adjusted R2 Standard error of the es-

timate
1 ,589a ,347 ,296 ,20625
a. Predictive variables: (constant), UT IC, Age, Size
b. Highest VIF: 1,432

The model developed has an R of 0.589, and R2 0,347 indicating that 34,7% of
the variability of the degree of international diversification depends on the use of
ICT. The ANOVA statistic has a low value of 0.001, which confirms that the vari-
ables are linearly related.

5 Conclusions

In general, the results provide support for the theories based on the relationship
between ICTS and international diversification, understanding that these types of
resources can stimulate the internationalization within the organizations. The
framework presented in this article, within a comprehensive model, sets the objec-
tive of contributing the ICT directors and those responsible for business strategies
in decision making within the company.

Since the study conducted has identified previous theoretical and empirical
studies, it demonstrates that there is a great interest in analysing the use of ICT
and its impact on the various organizational factors.

According to the results, it has been identified that companies with internation-
al operations in a greater number of countries present higher UTIC level. Like-
wise, means of the model proposed, it can be confirmed that the implementation
of the tools and practices associated with ICT has a positive impact on the degree
of international diversification of companies in the Basque country.

Likewise, the overall average of ICT still remains low in SMEs and the results
are in line with the work of (Bayo and Lera, 2007, Cegarra et al., 2010). The most
commonly used technological tools, such as computers, internet, and email a re the
 7

most used within SMEs. Other tools such as electronic banking obtain a higher
value compared to other technologies. However, collaboration tools such as e -
learning and technological surveillance tools are characterized by a low rating.

The results of this study suggest that companies which are internationally active,
also demonstrate a high use of ICT. Whilst this relationship holds for the compa-
nies in the Basque region, the overall level of ICT is only at an acceptable level.

6 Acknowledgments

We would like to thank the Regional Government of Gipuzkoa for their support in
the development of this project, as well as to all participating companies.

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