Service innovation and internationalization in SMEs: antecedents and profitability outcomes

Anna Vuorio,Liisa-Maija Sainio,Lasse Torkkeli

doi:10.1007/s10843-019-00266-z

Abstract

Both innovating and internationalizing can hold the key to survival and growth among small- and medium-sized enterprises (SMEs). Service innovation in particular is highly relevant in the increasingly digitalized and high-technology global trade. However, there have been until now few studies on service innovation in international entrepreneurship. Thus, in an effort to illuminate its role in entrepreneurial internationalization, the present study examines the profitability impact of service innovation in SME internationalization, while also outlining the differing impacts of entrepreneurial orientation and human capital as the antecedents of both. The empirical data were collected via an online survey of Finnish SMEs in the information and communications technology (ICT) industrial sector, the final sample comprising 104 companies. The data were analyzed through structural equation modeling. The results indicate, first, that entrepreneurial orientation underlies both degree of internationalization and service innovation, yet different dimensions of entrepreneurial orientation have distinct impacts on the two outcomes. Second, we find that the level human capital also determines the level of service innovation in as an antecedent and third, international expansion, but not service innovation, has a negative impact on profitability. We discuss the implications of these results, which imply that SMEs may face an internationalization-innovation paradox in that engaging in both activities may not be a feasible strategic option for them, and that prioritizing internationalizing in favor of innovating may incur costs and result in lower profitability.

Highlights

The development of small- and medium-sized enterprises (SMEs) is essentially influenced by the extent of their success in innovation and internationalization (Louart and Martin 2012; Hagen et al 2014), and innovative SMEs are more likely to export than non-innovative SMEs (Saridakis et al 2019)
Contributions: The study contributes to the international entrepreneurship literature by examining entrepreneurial internationalization and service innovation, their drivers and performance implications
This study explores the relationship between entrepreneurial internationalizing and service innovation by analyzing jointly the effects that the extent of service innovation and degree of internationalization (DOI) have on the profitability of internationalizing SMEs, as well as the effects that entrepreneurial orientation (EO) and human capital have on both innovation and internationalization

Summary

Introduction

The development of small- and medium-sized enterprises (SMEs) is essentially influenced by the extent of their success in innovation and internationalization (Louart and Martin 2012; Hagen et al 2014), and innovative SMEs are more likely to export than non-innovative SMEs (Saridakis et al 2019). The two have been found to be intertwined (Onetti et al 2012; Denicolai et al 2015), but whether innovation is a driver of internationalization (Golovko and Valentini 2011; Veglio and Zucchella 2015; Calvo and Villarreal 2019; Weerawardena et al 2019) or rather, if the opposite is the case (Kafouros et al 2008; Zahra et al 2009; Genc et al 2019; Vrontis and Christofi 2019) and under which conditions, could do with further study as the extant literature has found both types of relationships, and the linking literature overall is of recent origin (Hagen et al 2014). Bello et al (2016) recently examined how innovativeness of service offerings relates to financial performance, but that study did not account for internationalization, which we in this study aim to do

Objectives

Methods

Results

Discussion

Conclusion