The effect of the degree of internationalization on the international competences and financial performance of Brazilian SMEs

The aim of this work is to identify the relationship between the Degree of Internationalization (DOI) of Small and Medium size Brazilian Companies (SME) and both financial performance and the development of international competencies. The increase in DOI, mediated by the development of abilities to deal with the international market (Knight & Kim, 2009) ensures international competencies that can differentiate SMEs with high DOI from those that operate locally (Penrose, 1959; Teece, Pisano, & Shuen, 1997). By means of a survey applied to 114 companies with up to 200 employees (Ministério do Desenvolvimento da Indústria e do Comércio Exterior [MDIC], 2010), this research tested the hypothesis where an increase in DOI involves the development of international competencies and improves financial performance. Due to the complex nature of the constructs used in this study, the presence of errors, and the need to identify multiple relationships simultaneously, we used the structural equation modeling (SEM) statistical technique. The results indicate that with an increase in the degree of internationalization, the SMC develops its international competencies and, therefore, has better performance. The relationship, in the mediation of the development of new competencies, between the increase in DOI and organizational financial performance explores a new approach in international business, particularly for SMCs.