Innovativeness and internationalization in SMEs: An empirical analysis in European countries

Abstract

Innovation is essential to the knowledge economy and requires organizations to open to external markets. This paper delves into the influence of product innovation on internationalization in SMEs and elaborates an explanatory model of their innovative behavior. Analysis of the data of 123,395 surveys of firms in 13 European countries demonstrates that product innovation drives the firm's commercial expansion and favors its exportation activity, though with a non-linear relationship and decreasing performances as innovation level increases. It is also demonstrated that, in general terms, risk in geographic market extension does not vary in a relevant way when firms are more innovative. Significant differences were detected between countries in regard to the impact of innovation and its marginal utility, and in the evolution of risk in said market extension with increasing innovation. The comparative analysis reveals differences between more and less technological industries, and, on an aggregate level, between more developed economies in the Western and Eastern European transition economies, with less marked disparities from north to south. Analysis of the model reveals the prominence of internal variables in innovative behavior, as well as a certain disconnect between firms and the institutional context in the set of countries.