Service innovation and internationalization in SMEs: Implications for growth and performance

Abstract

1. IntroductionThis study investigates the influence of sendee innovation (SI) on strategic outcomes among small and medium-sized enterprises (SMEs). SMEs form the base of economic development in Europe and have been recognized to be important contributors to the recovery from the recession (Ecorvs, 2012). The growth and performance of SMEs are driven by how they manage innovation and internationalization (Louart & Martin, 2012; Hagen, Denicolai, & Zucchella, 2014; Rask, 2014), and how organizational culture in a small firm can be conducive to both (Knight & Cavusgil, 2004).This is noteworthy for various reasons. First, combining innovation and internationalization has been shown to generate the highest growth potential for performance among SMEs (Lecerf, 2012). Second, managing innovation and internationalization may present theoretical and managerial challenges as the two exist intertwined in SMEs and may have common antecedents (see Hagen et al, 2014; Onetti, Zucchella, Jones, & McDougall-Covin, 2012; Zahra, Ucbasaran, & Newey, 2009). Third, Dai, Maksimov, Gilbert, and Fernhaber, (2013) have suggested that a moderate level of innovativeness of SMEs could in fact hinder their internationalization efforts, a notion implying that SMEs may be facing a trade-off when aiming to manage internationalization and innovation. Such a trade-off may occur despite the fact that both internationalization and innovation on their own may allow SMEs to accrue strategic and financial benefits. On the other hand, high or low levels of innovativeness increase the scope of internationalization. While the literature, in general, suggests that innovations enhance performance (e.g. Cainelli, Evangelista, & Savona, 2004; Damanpour, Walker, & Avellaneda, 2009), more research is needed in the SME context (Edwards, Delbridge, & Munday, 2005), in particular to find out how SMEs can manage innovation and internationalization simultaneously.One specific area in need of further study is the role of service innovating. This is because present studies on innovation and business performance in general, and within the SME managerial context in particular, have mostly examined the impact of product- and process innovations rather than service innovations (e.g. Bell, Crick, & Young, 2004; Trott, 2008; Damanpour & Gopalakrishnan, 2001; Kotabe & Murray, 1990). SMEs originating from different countries may also seek to manage their innovation differently and differ in their use of innovation networks (Gretzinger, Hinz, & Matiaske, 2010), and co-innovating has an impact on both network management of SMEs as well as to their overall internationalization process (Lofgren, 2014).A service innovation (SI) is understood as a repeatable, significantly new or renewed sendee generating developer benefits (Toivonen &c Tuominen, 2009). Services have been associated with a limited degree of change as a result of manufacturingdominated models applied in service innovations. This has generated the idea of service innovations being dependent on their supplier as a source of innovation. These issues have been proposed to hinder the attention given by academics, despite their recognized role in building competitive advantage (Tether, 2005). Moreover, some scholars (e.g. Cainelli et al., 2006) have suggested that the relationship between SI and business performance may be more complex than presently understood: some findings even suggest that SMEs could benefit more from general orientation towards in- novation than from pure focus on innovative outcomes (Rosenbusch, Brinckmann, & Bausch, 2011). Thus, innovation management in the context of SI presents a specific challenge to internationalizing SMEs in a practical sense as well as to theoretical research. This, in turn, implies that business performance studies of SMEs in the context of the service industry and innovations are needed.In the present paper, we seek to respond to these research gaps by clarifying how SI manifests itself in SMEs aiming to innovate and internationalize successfully. …