The institutional context of SME internationalisation in an emerging-market economy: insight from Indonesia

Internationalisation strategy for Small and Medium Enterprises (SMEs) is essential in the globalisation era, especially for SMEs in emerging market countries that face challenges in competing with firms from developed countries. The objective of this study is to investigate the role of formal and informal institutions in SMEs internationalisation in an emerging market context. The research was taking place in Indonesia, an emerging market country in Southeast Asia. As an archipelago country with thousands of islands, Indonesia is considered to have a rich institutional environment, both formal and informal in the national and subnational levels. It has been noted that over 99% of Indonesian SMEs have not undertaken international activities. Therefore, this study addresses this problem by applying institutional theory to identify the gaps in formal and informal factors from the national and subnational institutions toward SME’s performance in conducting international business. Academic literature related to SMEs internationalisation is reviewed. A conceptual model was then developed followed by research questions. The study uses a multi-method by collecting secondary data and in-depth interviews with public policy actors and SMEs’ owners. The results contribute to understanding SMEs’ behaviour in facing globalisation through expanding business overseas, explaining the link between government support policy and SMEs internationalisation, and the role of institutions within it.