International expansion is no longer the exclusive domain of large multinational corporations (MNCs). Internationalising small and medium enterprises (SMEs) feature prominently in today’s economic landscape especially, but not exclusively, in knowledge-intensive sectors such as software and biotech. These SMEs overcome their resource constraints and accelerate their internationalisation process by leveraging their network relationships with other companies, such as key clients or strategic partners.

One potentially valuable network relationship that is seemingly overlooked by many SMEs: a local relationship with a foreign MNC. That is, a relationship with a local MNC subsidiary. While SMEs often collaborate with other SMEs, they may also forge links with larger firms that can provide them with both resources and opportunities that would ordinarily be beyond their reach.

Associating with larger firms can provide legitimacy to SMEs, especially because of the formation of new ventures, where an unproven track record may deprive them of credibility in the marketplace. A relationship with an MNC can potentially help in all these ways. Although possibly advantageous for SMEs, interaction between SMEs and MNCs is unlikely to take place easily or naturally.

After forming a relationship with an MNC, an SME should establish its credentials by being clear about, and focusing on, the greatest value that it can add to the relationship. The SME can then proactively leverage the MNC’s complementary capabilities. For instance, if the SME’s main contribution pertains to specialised technology, then in order to enhance its prospects of internationalisation it can draw upon complementary technical expertise from the MNC as well as its marketing base to achieve greater international visibility.

The most important thing in the development of a meaningful SME-MNC relationship must be underpinned by the SME’s solid innovation base. Integral to the process of consolidating the relationship from there on is the process of building trust incrementally. This calls for investing time and energy in regular interaction with the MNC partner. However, the SME should also be aware of the inherent instability in such relationships.

One way to deal with this vulnerability is by “modularising” knowledge transfer from the MNC partner. This is because when collaborative projects have discrete knowledge transfers, it is possible to achieve partial success even if the project gets shelved at some point down the road.

Joint projects can be broken down into specific knowledge transfer milestones. Decisions beyond its control led to the termination of a collaborative partnership with an MNC subsidiary after about six months of activity. A modular approach to knowledge transfer, however, meant that this SME ended up with a perfectly functioning prototype using the MNC’s hardware platform, which required no further additional technological development going forward.