الفهرس 
Chapter I Framework of the StudyOnly 14 pages are availabe for public view
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Abstract
Introduction
An organization is an integral part of its surrounding environment. Organizations are affected with new changes in the surrounding environment as technological evolution represented in the internet, its related technologies, easiness of transportation and logistics breakthrough, tremendous changes of taste and mobility of resources all of these changes led to the concept of globalization. A global firm is one that by operating in more than one country gains marketing, production, R & D and financial advantage that is not available to purely domestic competitors. Major decisions in international marketing range from detecting the global marketing environment, deciding whether to go international, deciding which market to enter and how to enter the market, deciding on the global marketing program and finally deciding on the global marketing organization. (Kotler 2007). As global competition increases as there is an increased attention to innovation. This places a greater compulsion upon large businesses to develop stronger linkages with innovative SMEs, small and medium enterprises. Conventional companies with traditional local focus (often family owned) and more innovative companies (often professional service groups) are the main two forms of ownership in small and medium enterprises. Conventional SMEs have strong local demand & see themselves as meeting primarily local needs. Innovative SMEs tend to be more global focusing upon narrow product/service segments within this context. SMEs usually seek internationalization to overcome competition from other more international firms, customer requirements, large firm requirements, alliance in a joint venture, and for international conventions and standards. The role of SMEs in international market vary in the supply chain from domestic supplier of input to products, exporter for a specialized niche products, importer/distributor of goods from foreign SMEs and finally providers of support services to international trade transactions (inland transport, freight forwarding). (Turner and Johnson, 2003).
SMEs in general tend to face three sets of competitive challenges; size-related constraints, market failures and policy biases. where scale economies are inherent in any of the stages in the value chain, small size imposes costs on SMEs. Small size also penalizes the enterprise in high-risk activities, where technology is exceptionally fast-moving and based on sizeable R&D investments, or where investments have to aim at the global market from the start. Also, the certification of product and process standards has proven to be prohibitively expensive for smaller firms, thus making their integration in value chains more difficult to implement. Furthermore, the segmentation of factor markets places SMEs at a disadvantage with regards to access to input, credit, labor, and information and technology markets. The economic reason for such market failures is that providers of these factors may find it easier and more economic to deal with a few large firms rather than with a dispersed multitude of SMEs. In the case of developing countries the above problem is compounded by the ill positioning of SMEs to deal with technical and technological change. In addition, it is well known how many public policies, even some of those intending to favor SMEs, tend to place small enterprises at a disadvantage. These may include import and export policies, taxes and their administration, as well as several other aspects of the legal and regulatory framework that disproportionately increase the transaction cost for SMEs.
To date, SMEs contribute some 25-35 percent of world manufacturing exports and account for a small share of direct investment. As of the Egyptian economy, small and medium enterprises constitute more than 90% of the Egyptian economy, moreover they do employ 75% of the workforce, in addition, such businesses as one of the techniques used by the government to overcome unemployment. As a result, this paper is dedicated to study the SMEs internationalization & what is the factors affecting their internationalization decision, as the modes of entering international markets & how does it affect the performance of SMEs.
Research Problem:
Internationalization in software industry is a critical step for surviving in the local and international market. Most of the software companies rely on international partner as a provider for the service from which they can customize their service to domestic clients. Other software companies act as a partner in international outsourcing process. They can be part of the software formation process, where they sell the international partner part of a software model or to a subcontractor. They are part of international outsourcing arrangements. The choice of companies from SMEs in Egypt and from other developing nations usually depend on the Owners competencies as well as the location of outsourcing conditions.
Based on the presented problem, the following are some questions the researcher will attempt to provide answers for:
• What are the competencies of the decision makers that affect the international partners in choosing an outsourcee ?
• How would the competencies of the decision maker of a supplier of an international outsourcing arrangements affect the his/her performance?
• How would the decision maker competencies of an outsourcee affect the international outsourcing arrangements relationship aspects ?
• How would the decision maker competencies and international outsourcing affect the SME performance?
• How far does external environment affect international outsourcing relationship and their effect on SME performance ?
1-2 Research Objectives
• To identify the entrepreneurial competencies of SMEs that is willing to intervene in international outsourcing.
• To identify the entrepreneurial competencies that could affect the SME performance.
• To investigate the relationship between international outsourcing psychological contracting and the SME performance.
• Finding the effect of psychological contracting of international outsourcing on the relationship between entrepreneurial competencies and SME performance.
• Finding the effect of external environment on the relationship between international outsourcing psychological contracting and SME performance.
1-6 Hypothesis
1- There is a moderate positive relationship between entrepreneur competencies and psychological contracting of international outsourcing.
2- There is moderate positive relationship between entrepreneurial competencies and SME performance.
3- There is a moderate positive relationship between international outsourcing psychological contracting and SME performance.
4- There is a positive mediating effect of psychological contracting in international outsourcing on the relationship between entrepreneurial competencies and SME performance.
5- There is a strong moderating effect of environmental factors on the international outsourcing psychological contracting and SME performance.
Findings
Following are the significant results and interrelationships between the variables under study.
1- There is a relationship with statistical significance between entrepreneurial competencies and psychological contracting of outsourcing (relationship). On testing the highest of such competencies, the correlation did show that both relationship building and commitment competencies tend to be the highest. Such a result confirmed with what Manulova et al, 2002, in their study that elaborated on the importance of personal networks and relationships in conducting international business agreements. Also developing strong client supplier relationship and client fellowship is an important factor for the success in international ventures (Freeman et al, 2006). Also, the development of international networks is important in accelerating the internationalization process (Oviatt & Mcdougall, 2005). Commitment competency is associated with relationship competency as an important factor for the development of international outsourcing agreements.
2- As of other competencies, such as of opportunity seeking, strategic thinking, and other competencies, their effect tends to be minute compared to other relationship building and commitment, such competencies didn’t add much to international outsourcing relationships. However, in different studies a global mindset should be always in global search for opportunities and processing of information. Also, a global leader is focused on the whole picture and changes in environment, in addition to, strong confidence in vision and organization processes, high value of teamwork among different parties & constantly challenging his own experience (Paul 2000). Also, internationalization timing depends on the entrepreneurial capabilities, orientation and alertness, information search, processing and cognitive mindset (Wright et al, 2007). This could be attributed to the fact that 65% of respondents have less than 5 years experience in international outsourcing. In addition, software industry requires more spending on human capital and better managerial skills and exposure in order to grow, both resources are lacking in small and medium enterprises in Egypt which impede growth for most of the SMEs. Also, the short term orientation of most small businesses projects doesn’t encourage investing in such competencies. However, the more experienced the SMEs in International outsourcing the higher the need for having better abilities in strategic thinking, organization, opportunity seeking and conceptual competencies.
3- Further, the competencies cannot solely predict the changes in psychological contracting of International Outsourcing. As contracting in international outsourcing include two parties the client side and supplier side. This research focused on the supplier side only to determine the most effective entrepreneurial competencies in international outsourcing in IT industry.
4- There is a postive significant relationship between Entrepreneurial competencies and SME performance. This confirms with a study conducted by scholars (Sarwoko ,et al., 2013) which shows that there is a mediating relationship between entrepreneurial competencies and business performance, while considering entrepreneurial characteristics as the principle independent variable. Another study was conducted in Indonesia, also, confirmed with the change in entrepreneurial orientation or competencies can lead to improvement in firm performance (Clausen and Madesn, 2011).
5- However, the entrepreneurial competencies do not interpret much of the changes in SME performance though the relationship between the two variables is still significant. It is worth mentioning that other mediating factors can be added to this relationship such as environmental factors, firm size, experience, entrepreneurial characteristics and change in entrepreneurial orientation. (Sarwoko et al, 2013; Clausen et al, 2011). Relationship and commitment competencies are the most important competencies as they have high correlation with SME performance. In this respect, those competencies tend to affect both the psychological contracting and SME performance more than any other competency. As of conceptual, organization and opportunity seeking competencies, such competencies tend to have an insignificant effect on SME performance. This can be attributed to the experience factor as lots of respondents are having less than 5 years experience in international outsourcing.
6- There is a positive significant relationship between the psychological contracting on the performance of SME’s. This agrees with some scholars who determined that the relationship between internationalization and Business performance is positive due to the opportunities uncovered in other geographical regions (Delios and Beamish, 1999), the influence of corporate entrepreneurship (Luo et al., 2005), and the increase of market power (Kim et al., 1993). Another group of scholars found a negative or non-existent relationship between internationalization and performance, and argued that global diversification represents a cost related to the agency relationship between managers and investors (Denis and Yost, 2002). This study confirmed a positive relationship, however, the psychological contract of International Outsourcing components does not interpret much of the changes in SME performance. As there are other factors such as industry, decision maker characteristics and firm human resources characteristics that could be affecting indirectly SME performance.
7- On testing the effect of psychological contracting as a mediator between entrepreneurial competencies and SME performance, there is a significant mediating effect for psychological contracting between entrepreneurial competencies and SME performance. This confirm with the results that Psychological contracting stood out to be one of the significant factors affecting IT outsourcing project success also it is mediating the relationship between partnership quality and IT outsourcing success (Kim et al, 2007). Also, Outsourcing is mainly a relationship between a vendor and a supplier; as a result, a major part of it depends on social exchange theory from which psychological contracting emerged. In this study, a relationship between competences and psychological contracting was tested and proved significant. As a result, psychological contracting could be mediating the relationship between entrepreneurial competencies and SME performance. Other mediators could be added, however, psychological contracting remains to be an important mediator for the relationship between entrepreneurial competencies and SME performance in International outsourcing for Software businesses.
8- Psychological contracting is partially mediating between relationship building and commitment competency and SME performance. However, the mediation effect is less than the direct relationship. This will lead the researcher to the conclusion that part of the effect of relationship building and commitment competency is contributing in psychological contracting as part of the contracting is effective inter-organization relationships, which affect the SME performance. However, psychological contracting isn’t that important mediator as its indirect effect is considered much smaller than the direct effect of relationship building and commitment competencies on SME performance. As of strategic thinking competency, Psychological contracting is a stronger mediator and its effect is considered of an important value for the relationship. Psychological contracting affect the strength of the relationship between strategic thinking and SME performance. As of the other competencies, psychological contracting is not mediating the relationships as they are no significant relationship between organization, conceptual and opportunity seeking and SME performance. As a result, a focus on psychological contracting is needed to enhance the strategic thinking capacity of the firm in international outsourcing arrangements to improve the SME performance.
9- In testing the effect of adding environmental factors, both business and political factors have the strongest significant effect on psychological contracting relationship components. By conducting the regression analysis while including the business and environmental factors, shows that environmental factors along with the Psychological contracting components do explain much of the changes that occur for SME performance. According to Atkearny 2005, location attractiveness, an environmental index, that plays an important role in the choice of outsourcing location, the India’s overall lead in attractiveness has dwindled due to wage inflation and improvements by China along people skills and infrastructure dimensions, while the Philippines, despite some weaknesses in infrastructure and political stability, continues to benefit from improvements in education and the English language skills of its workforce. Meanwhile, Indonesia benefits from low wage, tax, and infrastructure costs. Such environmental factors are a determining point in international outsourcing. As a result, political and business changes could account for extraneous indirect effect on the SME performance which cannot be ignored. According to Atkearny 2013, Egypt dropped in its rating in location attractiveness index from the 4th ranking in 2011 to after the 12th position. This DROP is due to the political and business changes occurring in Egypt.
10- Concerning the moderation effect of the environmental factors, adding the interaction effect of business factors and political factors did add to the interpreting power of the model. However, the moderating effect of the business and political changes made the effect of the psychological contracting components on SME performance insignificant compared to the interaction of psychological contracting of international outsourcing components with both political and business changes. SMEs are highly sensitive to changes in rules and regulations which can affect its performance.
11- As of the relationship between entrepreneurial competencies and SME performance, adding the environmental factors and the Psychological Contracting of International Outsourcing components added in interpreting the effect of changes in SME performance. Relationship building and commitment, strategic thinking and organization were the only significant competencies. Relationship building and commitment competencies are the most positive effective of all competencies. However, the addition of the moderation effect of political changes caused the relationship between Psychological contracting of International outsourcing components and SME performance insignificant. This can be attributed to the huge changes in business rules and regulation, in addition to huge political changes in rules and regulations related to IT sector.
12- In conclusion, there is a significant relationship between entrepreneurial competencies and SME performance, and psychological contracting is mediating this relationship. However, the role of psychological contracting is insignificant due to the moderation effect of political changes. Relationship building and commitment is the most important competencies, however, the importance of other competencies increase as the experience in International outsourcing projects increase. Also, Psychological contracting fulfillment is associated with the experience in international outsourcing projects.