Sandeep Maharaj et al.

, IJSID, 2012, 2 (3), 366-376

ISSN:2249-5347

IJSID

International Journal of Science Innovations and Discoveries

Research Article

An International peer Review Journal for Science

Available online through www.ijsidonline.info

BARRIERS TO INTERNATIONALIZATIONA STUDY OF THE PHARMACY SECTOR IN TRINIDAD AND TOBAGO Sandeep Maharaj1, Balraj Kistow1, Avinash Ramnarine1, Reynold Baldeosingh1,
1Arthur

Lok Jack Graduate School of Business, School of Pharmacy, The University of the West Indies, St. Augustine; 2Professor, Community Medicine, Sikkim Manipal Institute of Medical Sciences, 5thMile,Tadong,Gangtok, Sikkim, India. Sureshwar Pandey1, Ranabir Pal2 ABSTRACT

Received: 13.04.2012 Accepted: 17.06.2012

*Corresponding Author

faced by the retail pharmacy sector in Trinidad and Tobago. The study as being major constraints in their efforts at moving beyond the borders

used a survey methodology designed to measure a firms willingness to of Trinidad and Tobago. Three hypotheses were put forward and tested. Of them, Hypothesis 1, which stated that finance was a major constraint, as critical for internationalization were proven to be true. Hypothesis 3, that younger firms are more willing to internationalize, did not prove to major barriers, age of the firms is not significant. be significant. The results show that while finance and networks are INTRODUCTION

internationalize and to determine the barriers that pharmacies perceive and Hypothesis 2, which stated that network connections were perceived

This study seeks to examine the barriers to internationalization

Address: Name: Sandeep Maharaj Place: Arthur Lok Jack Graduate School of Business, The University of the West Indies, St. Augustine E-mail: sandeepmaharaj@hotmail.com

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Sandeep Maharaj et al., IJSID, 2012, 2 (3), 366-376 pharmaceutical companies to bring down product costs. Healthcare does not necessarily need to be administered in a large The ageing population and increasing healthcare expenditures worldwide are pushing medical devices and INTRODUCTION

institution or firm but occurs very often in Small and medium business enterprises (SME) and local environment. For example, clinics, laboratories, ambulances, pharmacies. SME have traditionally played a crucial role in the development of between the medical devices and pharmaceutical companies and the general public. new products in the biotechnology and medical devices industry. These firms, due to their quick adaptability, ability to identify market niches, and considerable innovative potential form an important component of the healthcare industry worldwide serve to provide a source of employment as well as contribute to economic productivity and income. In Trinidad and Tobago there are 253 registered pharmacies. With the exception of a few which are part of larger As part of the SME sector, pharmacies (Buyer, 2009). Noteworthy SME in this sector include retail pharmacies which serve the important role of bridging the gap department stores, most pharmacies in Trinidad and Tobago can be classified as locally owned SME. Many of these

pharmacies have a long tradition of providing high quality service to customers and have established long standing relationships with customers by providing personalized care and service. To this end, many of the small pharmacies in the more successful SME in the country. Additionally, Trinidad and Tobago has also been successful in producing a regular West Indies, School of Medicine. supply of pharmacists to service the industry through the pharmacy training and certification program of the University of the moving to locations outside of Trinidad and Tobago. Even though the potential benefits to be gained from the economies of scale in purchasing can increase competitive advantage in the local market and improves income levels, few, if any local pharmacies have internationalized their operations. Tobago. Firstly, the paper briefly defines the SME sector, after which the hypotheses are proposed for consideration and the willingness of the owners of these pharmacies to internationalize, and a determination as to what constraining factors or barriers, they perceive as being critical in keeping pharmacies from internationalizing. Defining SME This paper seeks to investigate the barriers to internationalization of SME in the pharmacy sector of Trinidad and Notwithstanding their success at the local level, the pharmacy sector in Trinidad and Tobago has been very slow in

Trinidad and Tobago have been able to withstand the competitive pressure of the larger players in the sector and are some of

testing. Using a small sample of pharmacies from throughout Trinidad and Tobago, a survey was administered to determine Small to medium enterprises can be defined in a number of ways. The definition is unique to each country (Ward et al,

2010) as well as different industries in the same country (Business Dictionary, 2010) and is usually based on the countrys or the industrys most current economic development. Therefore the way a country defines its SMES may be subject to change in in gross revenues. In the US, any firm from a small home office to a large corporation may be called a SME. The International

the future. Statistics Canada defines an SME as any business establishment with 0 to 499 employees and less than $50 million

Chamber of Commerce (ICC) defines a SME as having 100 to 2000 employees (Business Dictionary 2010). The system used to define small to medium enterprises in the European Union (EU) takes into account a businesss turnover rate in addition to its Member States traditionally had their own definition of what constitutes an SME, for example the traditional definition in International Journal of Science Innovations and Discoveries, Volume 2, Issue 3, May-June 2012 balance sheet (Ward et al 2010). This is essential for classifying businesses that will be able to benefit from EU programs or

policies specifically designed for small and medium-sized enterprises (Europa- Summaries of EU legislation, 2007). EU

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Germany had a limit of 500 employees whereas in Belgium the limit was approximately 100 employees. Nevertheless, the EU

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has recently started to standardize the concept (Wordiq 2010). Its current definition categorizes an SME as a firm with 50 to Enterprises,2007). In the EU, SMEs dominate and comprise approximately 99% of all firms, and employ between them about 65 million people (Wordiq 2010). annual sales of $250,000 to $5 million; and a medium Enterprise is one with 26 to 50 employees, assets of $1.5m to $5million fostering of SME commonly occurs (Wordiq 2010). Hypothesis

250 employees, an annual turnover of Euro 7 to 40 million, total assets of less than Euro 27 million, not more than 25 percent ownership by a large corporation and/or annual balance sheet total of EUR 10-43 million (Eurofound, Small and Medium-sized In Trinidad and Tobago, a small Enterprise is one with 6 to 25 employees, assets of $250,000 to $1.5 million and

and annual sales of $5m to $10 million (SME Development in Trinidad and Tobago 2010). SME, compared to big business, have a reputation for innovation. For this reason, and because of their difficulties in attracting capital, national and regional choose to enter and the level of international involvement. Morgan (1997) contends that the research about export barriers in export activities and, second, problems experienced by firms which have already initiated export operations. While with that exercised a major influence in a subsequent stream of research on the topic can be attributed to Rabino (1980). The and communication with customers. Entrepreneurs perceptions of the barriers to internationalization will influence their decision on which markets they

has tended traditionally to emphasize two forms of export barriers: first, the problems which discourage firms from engaging firms, export barriers tend to be perceptual reflecting the decision maker's subjective opinion and beliefs (Morgan 1997).

regard to the latter, barriers identified are often experiential in nature (Leonidou 1994); on the contrary, in non-exporting Although, the first studies referring to perception of export barriers go back as far as the 60s and 70s (Bilkey 1978), the study also their perception as to why their peers did not export. Five major problems were considered in order of importance: relevance of Rabino's (1980) study relies on the fact that he identified not only the actual problems facing exporting firms, but paperwork, selecting a reliable distributor, non-tariff barriers, honoring letters of credit thus emphasizing financial constraints initiation of export activity (e.g., difficulties in raising the initial investment, tariff and non-tariff barriers, and lack of information about exporting), exporters were mainly concerned with operational issues (too much red tape, transport Hook and Czinkota (1988) found that while non-exporters placed great emphasis on problems associated with

difficulties, ill-trained personnel). In the early 2000s, there was an apparent reduction of interest in the topic, with fewer exporters, and exporters. While the major barriers faced by non-exporters were firm size, limited market knowledge, limited limited financial resources, limited access to capital, lack of government incentives, and limited market knowledge. Financial barriers to Internationalization Studies relating to financial barriers include studies relating to general barriers of a financial nature (Burpitt and

studies appearing in the most relevant scientific journals. Among the fewer studies undertaken in this field, Shaw and Darroch (2004) found a number of significant differences in perceptions of barriers to internationalization across non-exporters, likely experience, and limited financial resources among others, in the case of exporters and likely exporters the main obstacles were Rondinelli, 2000; Campbell, 1996; Ward, 1993), issues of resource availability (Ali and Camp, 1993; Karagozoglu and Lindell, greatest concern are those relating to limited financial resources and limited access to capital. International Journal of Science Innovations and Discoveries, Volume 2, Issue 3, May-June 2012

1998), cost of operating overseas (Rhee, 2002) and limited access to capital and credit (Ward, 1993). The barriers that are of

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firms, SMEs face larger financial and capacity problems. They found that when comparing barriers to the internationalization of SMEs and large firms, SMEs are more vulnerable to barriers. This particularly applies to the lack of financial resources, for which the difference was the largest and statistically significant (Svetlicic et al 2007). funds as more established firms (Kirpalani et al., 1987). This barrier could be preventing some entrepreneurial new ventures external equity partners may be a reflection of this difficulty to attract capital investment in small firms. For small firms, this problem of access to capital and resources has been observed by a number of other researchers (Ali and Camp, 1993; Buckley, nancial barriers are perceived as being greatest for the smallest rms (Ali and Camp, 1993; Karagozoglu and Lindell, 1998). placed on pharmacies in Trinidad and Tobago in the process of internationalizing. Social Networks and Internationalization (ENV) from internationalizing as much as they might wish. The observation that only 11.8% of New Zealand ENVs have In New Zealand limited access to finance is a big issue as younger firms are unlikely to have the same access to capital

In a study of SMEs conducted in Eastern European countries, Svetlicic et al (2007) found that compared to larger

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1989; Coviello and McAuley, 1999; Fillis, 2001; Karagozoglu and Lindell, 1998; Kirpalani et al., 1987). Not surprisingly, The above literature forms the basis for our hypothesis, which states that access to finance would be the major barrier faced Social networks can be defined as "interconnected social relationships that offer opportunities for, and constraints on, by pharmacies from Trinidad and Tobago in internationalizing process.Hypothesis 1: Access to finance is the major constraint

behavior" (Brass et al, 2004). Networks consist of nodes (firms and people), referred to as "actors," and the set of ties representing the relationship between nodes. Networks can provide various benefits, including information (communication), affect (friendship), goods and services (work flow), and influence (advice) (Brass et al, 2004). Networks are an important source of social capital. Social capital is defined by the OECD as networks, together with shared norms, values and understanding that facilitate co-operation within and among groups. Firms can benefit from norms of co-operation and trust embodied in various types of intra-firm and inter-firm networks (The Well Being of Nations, OECD). Fukuyama (1995) contends that there are positive correlations between social capital and various indicators of economic performance but these relationships are complex as there are a many variables involved. internationalization. Through social networks, firms can gain access to and mobilize external resources in order to aid the initiation of The mediation can provide the small firm publicity, contacts and legitimacy, resulting in first

international contacts and development of international business relationships. Zhou et al, 2007 argues that social networks

play a mediating role in the relationship between inward and outward internationalization and firm performance. The mediating mechanism is attributed to three information benefits of social networks: (1) knowledge of foreign market managers should consider social networks as efficient means of helping internationally oriented SMEs to go international more rapidly and profitably. opportunities; (2) advice and experiential learning; and (3) referral trust and solidarity. Using survey data from SMEs of among various parties that cooperate together and support one another). The results imply that international business people as actors. Inter unit networks are networks between organizational work groups, such as divisions, business units, and International Journal of Science Innovations and Discoveries, Volume 2, Issue 3, May-June 2012

China, they found some support for this mediating role of social networks in the form of guanxi (the network of relationships Networks exist at various levels of analysis (Hoang and Antoncic 2003). Interpersonal networks focus on individual

subsidiaries. Inter organizational or inter firm networks represent a level of analysis that focuses on organizations as actors.

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Examples of inter-firm networks include joint ventures, strategic alliances, joint programming, collaborations, business groups, consortia, relational contracts, and some forms of franchising and outsourcing. acquaintances, while strong ties are those such as the friends and family of an actor (Burt 1997; Kraatz 1998). Cranovetter

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(1973) gives some salient properties for identifying the strength of ties. There are namely the amount of time spent together,

the emotional intensity, the intimacy, and the reciprocal services that characterize the tie. The more contact the SME has with others doing business abroad, the more acquainted its decision makers will become with the process of doing business internationally. The more familiar the international market is to an individual the less risky it is perceived. As such it is expected that the greater contact with international networks the greater the wiliness to enter the international market. For the purpose of this paper we hypothesize that the stronger the network ties between the entrepreneur and the actors in the Hypothesis 2: Firms with strong network ties abroad are more likely to the willing to internationalize. Firms Age and Internationalization international arena the more likely they would be willing to expand their pharmacy operations into an international location.

Networks can be described as either having weak ties or strong ties. Weak ties are those considered to be social

internationalization. However, younger firms were more likely to have internationalized early in their life, which is consistent with early internationalization being a rising trend among SMEs. The differences between international and domestic markets often mean the knowledge and capabilities that SMEs developed for domestic markets not directly applicable to develop new knowledge about foreign markets and learn local practices (Lu & Beamish, 2006). Such a departure from existing international markets. SMEs need to depart from the existing routines and practices developed in their original markets and practices can be a difficult one because of the path dependence in the development of organization routines and practices. Once routines or practices are established, they are taken for granted and applied automatically in subsequent operations (Zucker, 1977). Therefore, organizational inertia in the form of established routines and practices could be barriers to routines and practices before new routines and practices can be learned and established (Barkema and Vermeulen, 1998; younger the firm, the more willing would it be to venture into the international arena. Hypothesis 3: The younger the firm the more willing would they be to internationalize. pharmacies in Trinidad; and telephone interviews for the Tobago. A total of 30 pharmacies were surveyed during August Authorities. There are five such regions in Trinidad and one on Tobago. Pharmacies were chosen so that that there was independence. Data was collected using a standard questionnaire (Appendix 1) administered using face to face interviews for the METHODS

Child and Rodrigues (2007) argue that whether a firm was high-tech or not was not associated with early

organizational learning which is essential for the success of internationalization. An internationalizing firm must unlearn old Autio et al., 2000). Organizational inertia is often a function of firm age. The older a firm, the more established the routines and practices, and the higher the level of organizational inertia (Hannan and Freeman, 1984). We therefore hypothesize that the

2010. The health care sector in Trinidad and Tobago is divided into geographic regions and managed by Regional Health among the various regions. The data collected was analyzed in SPSS, using descriptive statistics and chi square test for

representation from all of the regions of the Health Authorities in Trinidad and Tobago. Table 1 shows the geographic spread

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Sandeep Maharaj et al., IJSID, 2012, 2 (3), 366-376

1. 2. 3. 4. 5.

Table 1 - Number of Pharmacies Surveyed by Region Name of Survey Area Private sector medicine outlets North Western Regional Health Authority 6 Eastern Regional Health Authority 7 North Central Regional Health Authority 6 Tobago Regional Health Authority 5 South Western Regional Health Authority Region 6 30 Total
RESULTS AND DISCUSSIONS (FINDINGS AND ANALYSIS)

per branch. Of the pharmacies surveyed 50% has been in operation for more than 10 years, 30% for between 5 to10 years and 20% less than 5 years. Approximately 90% were set up as private limited liability companies, 7% were partnerships and 3% were set up as family owned entities. In relation to the number of branches, 70% had only one branch, while 20% had two branches and 10% had either three or four branches. Sixty three percent of the pharmacies surveyed indicated that they had basic knowledge of the international environment as it

None of the pharmacies had more than 40 employees counting all branches. On average there were 8 to 10 employees

related to pharmacies. This basic knowledge was largely limited to operational knowledge and some ideas of the regulations

and guidelines in setting up operations in an international location, mainly other Caribbean countries. Thirteen percent of the pharmacies indicated that they had an in-depth knowledge of the operational and regulatory requirement of the international business outside of Trinidad and Tobago. In relation to the willingness to internationalize, 40% indicated that they had no interest in expanding their environment. This knowledge was not limited to the Caribbean market but also to North America. Approximately one-quarter of the pharmacies (24%) indicated that they had no knowledge of the operational or regulatory requirement of the pharmacy operations abroad and were contented to service the domestic market. 57% indicated that they were interested in going abroad but did not have any strategic plan towards internationalizing with the next 12 to 24 months. Only one pharmacy Barrier In term of the constraints to internationalization, as shown in Table 3, 57% of the sample indicated that limited

(3%) indicated that it was actively looking at the prospect of internationalizing its operations. Hypothesis 1 Finance as a financial resources was the major barrier to internationalization. This provided further support for the first hypothesis, which of SMEs is concern. Domestic competition was identified as the second major barrier at (26%) followed by the absence of Svetlicic et al (2007) who found that compared to larger firms SMEs are more heavily burdened with the barriers of financial stated that financing is a major barrier for local pharmacies in expanding operations abroad. This finding is also consistent constraint as the University of the West Indies has a very successful pharmacy training program within its School of Medicine, from which a number of highly trained pharmacists graduate each year. These findings are also consistent with that of limitations and a lack of knowledge about the foreign market, even though these SMEs may consider themselves technologically competent. While SMEs may be able to easily overcome the knowledge barrier by hiring personnel with International Journal of Science Innovations and Discoveries, Volume 2, Issue 3, May-June 2012

with the literature in other countries thus supporting the notion that financing is a major issue where the internationalization

networks ties in international markets (13%). Not surprisingly, human resource availability was not cited as a major

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international experience and fostering networks, the financial barriers are always more surmountable for SMEs as compared to larger firms (Svetlicic et.al., 2007).

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internationalization as it could help to guide their policy action by helping firms to overcome these barriers especially as it relates to financing. It would also be useful to delve further into the nature of the financial barriers so that specific policies can be formulated to address them. An example of this is where some firms have difficulty raising finance while others may be seeking insurance. Hypothesis 2 Network ties and Internationalization Table 2: Willingness to Internationalize Willingness to Internationalize Frequency Percent No interest 12 40.0 Interested but no action planned 17 56.7 Very willing 1 3.3 Total 30 100.0 Table 3: Constraints to Internationalization Constraints Frequency Percent Financial 17 56.7 Network 4 13.3 Competition 8 26.7 HR constraints 1 3.3 Total 30 100.0

These results would be informative for government bodies charged with the mandate of promoting

Table 4: Network Connections and Willingness to Internationalize Willingness to Internationalize No Interested no Very willing Interest action Strong Connections Count 7 17 0 % of Total 23.3 56.7 0 5 0 1 Weak Connections Count % of Total 16.7 0 3.3 Total Count 12 17 1 % of Total 40 56.7 3.3 Pearson Chi-Square Value: 11.771, df: 2, p=0.003 Table 5: Years of Operations and Willingness to Internationalize Years of Operation Willingness to Internationalize no interested no action very willing less than 5 yrs Count 0 6 0 % of Total .0% 20.0% .0% more than 10 5 - 10 yrs % of Total Count % of Total Count 16.7% 7 23.3% 5 13.3% 7 23.3% 4 .0% 1 0

Total 24 80 6

6 20.0% 30.0% 15 50% 9

Total

20 30 100

Total

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Count 12 17 % of Total 40.0% 56.7% Chi-Square Tests; Pearson Chi-Square Value: 6.601,

1 3.3% df: 2, p=0.16

3.3%

30 100.0%

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market entry and expansion. Market orientation for local pharmacies considering globalization would include knowledge information gathered has to be analysed (formally or informally) and shared with key stakeholders. A market-oriented company is likely to cope with environmental uncertainty in foreign markets, where its knowledge of those markets is enhanced (Armario, Ruiz and Armario, 2008). Without a sound market orientation strategy, which is impacted by experiential Tobago pharmacies, as SMEs, may be challenged by the lack of experiential knowledge and market orientation relating to new steep, it can be prohibitive. Having strong networks in these markets can help to overcome this barrier. From the data collected, 13% of the respondents indicated that the absence of network ties was a barrier to internationalization. ties are an important factor in SMEs internationalizing. markets. This can prove to be one barrier to globalization as when the learning curve for doing business in the new country, is willingness to internationalize and the strength of network ties (p = .003). Pharmacies with strong network ties were much case of Trinidadian pharmacists, most of who are trained locally, experience from working in foreign countries is limited. regional or international experience, local pharmacists may find the home market to be psychologically safer thus the focus these pharmacies may not be as confident to invest in North American, European, Asian or Latin American countries. avenues necessary to give information and knowledge. Age and Internationalization Knowledge of other markets can be obtained from persons whom are trained or worked in foreign countries. In the

acquisition of business practices, consumer needs, cultural preferences and competitive pricing in global target markets. The knowledge, the Trinidad pharmacies are constrained, thus resulting in delays in their global expansion plans. Trinidad and

Relationships with actors in the international market have been identified as a major factor in fostering international

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more likely to internationalize than those with weak network ties. This result supports hypothesis 2, indicating that network Licensing, language, and work permit regulations reduce the opportunities for gaining experience in other markets. Without experiential knowledge of the pharmacists for its globalization thrust. Geographic distance can also be an impediment to

Further to this, Pearsons Chi-Square test for independence shows that there was a significance relationship between

remains on competing locally. Since most local pharmacies are owned by pharmacists, the company is dependent on

globalization and the Trinidad pharmacy may choose to limit their expansion plans to home and similar countries. As a result These results would be informative for government ministries and other state policy making bodies as well as pharmacies

association that might be a position to make ties and establish link with related parties abroad. These groups can serve as a conduit to cause exponential growth in local pharmacies wanting to internationalize but lack the international linkage and internationalization is different because the manner in which they establish, continue, and consolidate their foreign presence substantiating their competitive advantage on the international scene, which is likely to entail performance differentials. Lu and Beamish (2006) suggest that the existence of routines and long held organizational practices work against a Callard and Prange (2008) contends that the way traditional internationalizers and born globals approach

varies. These differences in terms of age and speed of internationalization emphasize new ways of anchoring and domestic market and SMEs become uncomfortable and unwilling to venture into the uncertain international market which is international arena.

firm moving into the international market. These attributes then become deeply rooted in practices that are supportive of the major barrier to internationalization as firms must now unlearn and change their practices to suit the new challenges of the International Journal of Science Innovations and Discoveries, Volume 2, Issue 3, May-June 2012

at odds with its ingrained practices. Zucker (1977) links these practices and routines to organizational inertia and see this as a

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Tobago to internationalize. Chi-Square test of independence shows that there were no significant difference in means between a firms age and its willingness to internationalize. This result is in contrast to the findings of Lu and Beamish (2006) which found age was a significant factor in a firms internationalization efforts. competition with their immediate vicinity. Twenty percent of the pharmacies had between 1 to 5 competing pharmacies within two kilometers of their business, while 43% had between 5 to 10 competing pharmacies within the same radius. In Having to focus their learning efforts on the domestic market could have affected these firms internationalization outlook.

The results do not indicate that age was a significant factor in the willingness of pharmacies from Trinidad and One factor which could explain these results is the level of domestic competition. All pharmacies had some level of

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37% of the cases there were more than 10 other competing pharmacies within two kilometers of their business. Thus, in spite

of age, firms may have been forced to direct their attention to the domestic market. Clercq et. al.(2005) suggest that firms that Another possible reason for age not being a significant factor in willingness to internationalize could be due to the nature of management in decision making and family-determined management also hinder internationalization (Svetlicic et.al., 2005). CONCLUSION the operations. While the pharmacies are legally organized as limited liability companies, many are in fact managed as family run operations. Family-run firms very often lack ambition and determination to expand their operations abroad, contenting There seems to be little intention on the part of pharmacies in Trinidad and Tobago to take their operations outside of themselves with manageable company and market size apart from any other obstacles. The incidence of ownership and the country at this time. The results indicate that while many are interested on going abroad financial, networking and domestic competition are posing significant constraints to achieving internationalization. Financial barriers remain a major government and the pharmacy boards use their influence to create and foster network connections for pharmacies that might market. market and family orientation of the pharmacies in Trinidad and Tobago. One of the major limitations of this paper was the of the pharmacies throughout the country. Further research into the impact of other factors such as domestic competition and focus on the Trinidad and Caribbean type economies. REFERENCES financial risk of failure, as failure can be detrimental to their domestic operation. Consistent with the literature, network

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