Abstract

Despite a big progress and increased attention to internationalization of small and medium sized enterprises (SMEs) among scholars, the relationship between institutional distance and sources of networking that SMEs utilize abroad remains uninvestigated. This study explored the impact of institutional differences between the host and home countries on the barriers that small enterprises face in the international markets and the composition of their networking ties. Subsequent analysis examined the moderating effects of firm’s maturity and previous experience in internationalization. The research was conducted with a help of World Bank database where the sample consisted of 357 SMEs with established operations in the European region. The results demonstrated positive relationship between the institutional distance and the level of challenges firms experience abroad. It also provides insights about institutional impact on the perceived importance of various sources of networking suggesting that SME owners from institutionally distance countries rely more on the strong inside connections such as friends and family. However with time they see more benefits in the outside, more formal sources of networking. These results highlight the value of the institutional environment in explaining networking activities of SMEs in the process of internationalization and can be applied by other scholars in different industry settings and cross-country comparisons.