ABSTRACT. In this paper, using aggregate data from the
U.S Bureau of Economic Analysis, the author explores the
strategies small U.S.-based foreign investing firms follow in
their international activities. The aggregate study supports the
findings of an earlier study of a few small firms with
international activities. These firms have a lower-than-
expected tendency to form minority-owned affiliates abroad.
An analysis of the industries in which these small foreign
investing firms operate supports the notion that these firms
follow specific strategies uncovered in the small-scale study.
Finally, the paper ties the findings to alliance strategies of
As Gomes-Casseres points out in the introduction
to his “Alliance Strategies of Small Firms” paper
(1995): “students of international business have
traditionally believed that success in foreign
markets requires large size.” Given this traditional
view, if a firm is not large yet wishes to compete
globally, it has two less-than-pleasant options: The
first one, give up on its dreams and stay frustrated
in its domestic market. The second one, give up
on its independence and seek help from other,
larger, players. If these were the only options,
managers of small firms in “global” industries
would be either myopic (those not interested in the
international arena), frustrated (those who wish
to go abroad, but can’t), or, good team players –
not independent leaders (those who seek others’
help). Yet as one looks at the ranks of small-firm
managers, one could hardly characterize them this
way. Something must be wrong with the analysis;
the question is what? Does the problem rest in
the “traditional” assumption, crisply stated by
Chandler, that “to compete globally you have to
be big,” (1990) or does it rest in the way I have
characterized small-firm managers?
The work Gomes-Casseres and I did (1994),
based on a limited sample of small firms with
international affiliates, suggested that the problem
may rest on the “traditional” assumption. After all,
92% of the foreign ventures in our sample were
majority-owned. The sample, however, was very
small. While it allowed us to explore these firms’
activities in depth, it did not enable us to gener-
alize further. In this paper I will report on a study
of all U.S. foreign investing firms that reported
their activities in the U.S. Commerce Depart-
ment’s 1982 Benchmark Survey (1992) to see if
the findings may be further generalized.
2. International activities of small firms
Evidence shows that small firms are, against the
expectations of many traditional scholars, active
players in the international arena. As can be seen
in Table I, small and medium sized parent firms
represented almost 50% of all U.S. foreign
investing firms in 1982. I prepared Table I based
on U.S. manufacturing firms’ foreign investment
behavior as reported by the Commerce Depart-
U.S. Direct Investment Abroad: 1982
Benchmark Survey (1985). I divided all U.S.
foreign investing firms (parents) into four size
categories, based on their employment in the U.S.
(10–499 = small; 500–1,999 = medium; 2,000–
9,999 = large; > 9,999 = very large). The 1,215
manufacturing parents and their 11,231 manu-
facturing affiliates are sample on which the data
presented in this paper are based. The methods and
data used are described in detail in Kohn (1988).
Small Firms as
Tomás O. Kohn
Small Business Economics 9: 45–51, 1997.
1997 Kluwer Academic Publishers. Printed in the Netherlands.
Final version accepted on June 8, 1996
School of Management
Boston, MA 02215