Globalization and technological change have brought new opportunities for small and medium enterprises (SMEs), but they have also created risks. Thus, SMEs have made efforts to seize opportunities under accelerating competition. However, compared to large firms, SMEs have disadvantages, including weaker R&D capability and fewer resources. Nevertheless, some SMEs can combine the advantages of their small scale and great adaptability with the economies of scale and scope provided by networks of SMEs (Davidsson et al., 2010, Jennings and Beaver, 1997 and Thorgren et al., 2012). Some SMEs also collaborate with multinational giants and enjoy the benefits of joining their global networks (Sawers et al., 2008). SMEs have developed several ways to survive today's hypercompetition.
For this purpose, one of the most important initiatives for SMEs is to recognize the most appropriate business opportunities for them. Once an inappropriate business opportunity is regarded as being appropriate due to bounded rationality and thus is chosen, it is difficult to make profits, even if SMEs put forth a strong effort. Also, SMEs are less able to recognize opportunities on a global scale due to their limited access to global information and knowledge. Thus, opportunity recognition has been regarded as the central function not only of international entrepreneurship, but of international business development (Eckhardt and Shane, 2003 and Mainella et al., 2013). We argue that an effective opportunity recognition method should be addressed and further developed for SMEs.
According to the current literature, opportunities can be divided into innovative and arbitrage opportunities. Whereas innovative opportunities are created by the introduction of new means, ends, or means-ends relationships, arbitrage opportunities are opened by market inefficiencies (Eckhardt and Shane, 2003, Kirzner, 1997 and Schumpeter, 1934). Arbitrage opportunities can be classified as either market or technological.
If a market-altering change causes a particular resource to be heterogeneously priced in several markets, some alert entrepreneurs may quickly recognize this phenomenon and profit by buying low and selling high (Kirzner, 1973). This situation is a typical market arbitrage opportunity. Somewhat differently, technological arbitrage opportunities are directly linked to innovation. Often, new innovation enables innovators to make a higher profit (Anokhin et al., 2011). It also creates technological arbitrage opportunities for alert entrepreneurs to benefit from imitating the advanced technologies in pursuit of temporary cost advantages.
Overall, previous studies have been lopsided, focusing on innovative opportunities. Entrepreneurial strategies have been characterized by either early recognition or creation of innovative opportunities (Marcati et al., 2008 and Morone, 1993). The adoption of emerging technologies has been a primary focus of attention (Newbert et al., 2006). Many scholars have investigated innovative opportunities in emerging technologies, emphasizing the role of entrepreneurs to identify them and use them effectively (Baron and Ensley, 2006 and Gruber et al., 2008).
In contrast, research practice has ignored arbitrage opportunities. Since Kirzner (1973) suggested the entrepreneurial process of discovering de facto arbitrage opportunities, there have been few attempts to deepen our understanding of market arbitrage opportunities, except for the following works: Eckhardt and Shane (2003), Kirzner (1997), and Kirzner (2009). Not so differently, although Aldrich (1999) and Ghemawat (2003) suggested that a significant number of new firms have been started not by innovators, but by imitators using technological arbitrage opportunities, researchers have made little effort to offer an acceptable operationalization.
Recently, Anokhin et al. (2010) tackled this issue and suggested a way of identifying and measuring technological arbitrage opportunities by employing the minimum performance inefficiency. A company can identify the presence of arbitrage opportunities through the comparison of its own inefficiency score with the scores of other companies. Using data envelopment analysis (DEA) and Malmquist productivity index, they attempted to quantify the amount of both innovative and technological arbitrage opportunities in national economies (Anokhin et al., 2011). However, although technological arbitrage opportunities can be identified, some companies cannot capitalize on these opportunities because of various reasons, including weak R&D capability and strong competitors (Su et al., 2013, Teece, 1986 and Teece, 2006). Even worse, there is no established way to identify appropriate technological arbitrage opportunities for a specific company.
Some recent cases and reports have suggested that the globally successful SMEs recognize and utilize a specific technological arbitrage opportunity (Lee et al., 2012 and STEPI, 2009). These SMEs enter a global market characterized by oligopoly and mature technology, develop the same or slightly better products at lower price, encroach upon the market share gradually, and become global dominant players (STEPI, 2009). This is regarded as a new type of international arbitrage opportunities in global markets. Thus, it holds some common characteristics with previous international opportunity studies, including opportunity recognition as a stimulus for internationalization and markets favorable to opportunity development (Crick and Jones, 2000 and Oviatt and McDougall, 2005).
Through interviews with CEOs of these SMEs, STEPI (2009) suggested that the SMEs recognize and choose these opportunities because the overall risk is smaller than that of innovative opportunities, as the technologies are already developed and products are commercialized and being sold in the market. Successful ways of marketing, distribution, and service are also established. Above all, these SMEs have enough organizational capabilities to catch up to the market leaders. This is a low-risk technological arbitrage opportunity characterized by a modest technology barrier, relatively unimportant market for oligopoly companies, and mature technology in global markets.
Although some cases have been reported, there is no research about how SMEs can recognize low-risk technological arbitrage opportunities. Tackling this issue, we suggest a way of recognizing such opportunities based on the real activities of SMEs. In Section ‘Methodology’, we review the previous studies on innovative and arbitrage opportunities and define technological arbitrage opportunities to distinguish those from general arbitrage opportunities. We define our low-risk technological arbitrage opportunity by its distinctive characteristics in Section ‘Empirical analysis’. Then, the overall process of opportunity recognition is described using analytic tools and measures. Key conceptual constructs are linked to those empirical measures. Subsequently, an illustrative empirical analysis of a company engaged in recognizing new opportunities in front-end semiconductor equipment is provided. Finally, we conclude with some discussions and conclusions.
This paper suggests a new method for recognizing low-risk technological arbitrage opportunities in mature technologies for SMEs. Above all, this is a first attempt to define a specific type of technological arbitrage opportunity, distinguishing it from general technological arbitrage opportunities. Reviewing cases and reports of some globally successful SMEs, we identify low-risk technological arbitrage opportunities with distinctive characteristics comprising imitable technology complexity, insignificant market for oligopoly companies, and mature technologies. These opportunities might be particularly useful for SMEs, implying other useful types of technological arbitrage opportunities. In this regard, our study opens a door for the study of various technological arbitrage opportunities.
Our method goes beyond simple opportunity recognition. Anokhin et al. (2010) presented a technique to measure and identify technological arbitrage opportunities, but did not suggest a way of assessing the appropriateness of opportunities for a specific company. As they pointed out, if the production functions of firms are different, their opportunity estimates could be wrong, and thus become inappropriate for some companies. Important characteristics of technological arbitrage opportunities including technology barriers and competitors are not considered enough.
In our method, three key characteristics, including technology complexity, market importance for oligopoly companies, and technology maturity, are identified and used as criteria to minimize the risks of technological arbitrage opportunities. Note that core risks of opportunities are evaluated and then unperceived risks are converted into perceived risks. We also provide basic criteria to evaluate the organizational fit of opportunities. Using these criteria, we suggest a systematic method to filter out high-risk opportunities and identify low-risk technological arbitrage opportunities for a specific SME. Our approach complements previous works by Anokhin et al. (2010), providing specific evaluation criteria and analytic tools to recognize low-risk and best-fit technological arbitrage opportunities for a specific SME.
Practically, our approach can help SMEs recognize appropriate low-risk technological arbitrage opportunities from mature technologies and thus identify a new path of market entry and business growth in global markets. Although SMEs can recognize some technological arbitrage opportunities using existing methods, they have difficulty in filtering out inappropriate opportunities among those. Large companies can use the qualitative judgments of several internal experts. However, under severe expert and knowledge constraints, SMEs cannot use experts’ judgments and thus cannot recognize appropriate opportunities. Using our method with empirical evaluation criteria and analytic tools, they can assess the appropriateness of opportunities and recognize the best-fit opportunities. Also, with mostly publicly available data and easy-to-analyze tools, our method has advantages over sophisticated methods such as TOA, which uses a huge amount of data and complex analytic tools.
Governments are probing for a way to boost the growth of SMEs. Various policies have been set and implemented. One of those policies is to invest in high-technology start-ups with government R&D funding. However, only over one third of government-funded SMEs reported an increase in sales (OECD, 2010). Put another way, the efficiency of these policies is not high in some countries. Through effective technological arbitrage opportunity recognition, our approach can help policymakers perceive low-risk and appropriate opportunities for SMEs and thus increase the efficiency of government policies for SMEs.
Despite the value of our findings, our study has several limitations. Above all, it is notable that some successful SMEs with low-risk technological arbitrage opportunity recognition depend on internal entrepreneurs. Reviewing cases of SMEs, we find that some entrepreneurs involved in the opportunity recognition process made important contributions. Thus, the role of entrepreneurs should be investigated. Although basic criteria are available, the organizational fit criteria need to be extended because there are company-unique but important capabilities, resources, and other criteria.
These limitations demonstrate the need for future studies. Above all, there are alternative empirical data, measures, and analytic tools available that are not provided here. For instance, technology maturity can be analyzed using technology adoption data and diffusion models. Such alternatives can enhance the applicability of our methods and thus should be explored in future studies. Also, some approaches for very small companies need to be developed. From a broader perspective, we expect that our research will stimulate specific approaches to find and utilize technological arbitrage opportunities. Last but not least, it should be noted that good opportunity recognition is not a guarantee of business success. Some SMEs can experience success by exploiting innovative opportunities. Similarly, some can fail to make profits from low-risk technological arbitrage opportunities. We make further efforts to identify the key factors of such phenomena and integrate those into the opportunity recognition framework.
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