Dynamic Capabilities, Internationalization and Growth of Small- and Medium-Sized Enterprises: The Roles of Research and Development Intensity and Collaborative Intensity.

Date01 Agosto 2022
AuthorFredrich, Viktor

1 Introduction

The inherent complexities of conducting international business (e.g., Buckley & Casson, 2001; Eden & Nielsen, 2020) complicate developing understanding about whether and how internationalization helps large or small- and medium-sized firms (SMEs) improve their performance (e.g., Hennart, 2011; Lu & Beamish, 2001; Majocchi & Zucchella, 2003; Nguyen & Kim, 2020; Ribau et al., 2018). Some studies have suggested that a firm's research and development (R&D) intensity (e.g., Booltink & Saka-Helmhout, 2018; Ren et al., 2015) or collaborative effort (e.g., Swoboda et al., 2011) affect the extent to which internationalization translates into better performance (Mukherjee et al., 2021). However, it is unclear whether and how the performance effect of internationalization depends simultaneously on both a firm's R&D and collaborative intensities. This study addresses this issue with a particular focus on SMEs and their export intensity as a measure of their internationalization. We focus on exporting because it plays a crucial role in the internationalization of SMEs (Kuivalainen et al., 2012; Leonidou et al., 2010; Love & Roper, 2015; Mansion & Bausch, 2020; O'Farrell et al., 1998; Westhead et al., 2002) and their growth (D'Souza & McDougall, 1989). With this focus, the study addresses two research questions: what shapes an SME's internationalization and conditions its growth, and specifically what roles do R&D and collaborative intensities play in furthering this growth?

The dynamic capabilities (DCs) perspective substantiates internationalization and its performance implications, with recent studies emphasizing the importance of SMEs' DCs in exporting (Efrat et al., 2018; Monteiro et al., 2017, 2019; Villar et al., 2014). DCs are a critical feature that explains firms' performance differentials: "dynamic capabilities undergird the 'future' of any ... [firm], because...they undergird competitive advantage" (Teece, 2014, p. 23). Essentially, a firm's DCs determine the degree to which it internationalizes and how it does so in a manner such that its performance improves. Therefore, our conceptualization assumes that DCs, at the corporate level, shape an SME's internationalization, which, in turn, affects its growth. Furthermore, and consistent with DCs reasoning, we argue that an SME's growth increases with its degree of internationalization as it engages in more external collaborations (e.g., Swoboda et al., 2011) and invests more in R&D (Booltink & Saka-Helmhout, 2018; Nunes et al., 2012). Both R&D and collaboration efforts are manifestations of DCs (e.g., Eisenhardt & Martin, 2000; Helfat, 1997) but operate at the business level enabling better local leverage of an SME's resources in one or more foreign markets when exporting.

Drawing on data from 262 SMEs, we apply partial least squares structural equation modeling (PLS-SEM) to assess our theoretical arguments. We use conditional mediation analysis and demonstrate an advanced application of PLS-SEM, which illustrates a conditional mediation analysis with two exogenous moderators that interact in moderating the growth impact of internationalization (i.e., assessing a second-stage three-way conditional mediation).

This study contributes to the international management literature by applying the DC perspective in explaining how an SME internationalizes and achieves growth. Our findings confirm that, in the first instance, an SME's corporate-level DCs affect its degree of internationalization and indirectly its growth. While a positive relationship is shown between internationalization and growth, our findings provide further clarification and suggest that the marginal effect of an SME's degree of internationalization on its growth is positive if the combinations of its R&D and collaborative intensities are balanced (or proportional); when they are imbalanced (i.e., one is greater than the other), then an SME does not experience a positive marginal growth impact. Hence, DCs that operate at the business level, manifested in R&D intensity and collaborative intensity, enable an SME to better leverage its resources in one or more foreign markets when exporting if they are employed in proportion.

We further contribute to understanding about the application of PLS-SEM in international management contexts and beyond. We apply conditional mediation analysis and demonstrate an advanced application of PLS-SEM with two moderators that interact in conditioning the growth impact of an SME's internationalization (i.e., assessing a second-stage three-way moderated mediation). Besides outlining our results using a well-established two-dimensional three-way plot, we illustrate the results of our second-stage three-way moderation analysis by outlining regions of significance of the marginal effect on the impact of a mediating predictor variable (i.e., internationalization) on a dependent outcome variable (i.e., growth) for simultaneously varying moderators. This illustration is not only relevant to international management scholars but also to strategy, marketing, HRM, and MIS ones to understand how relationships are simultaneously conditioned by two exogenous moderators. In doing so, we respond to Eden and Nielsen (2020, p. 1610) who stated that "complexity is the underlying cause of the unique methodological problems facing international business research" and to advance an approach to assess three-way interactions in PLS-SEM.

This paper first outlines the conceptual background and substantiates several hypotheses. It then describes our empirical methodology and results, followed by a discussion of our findings and conclusion along with the contributions to the international management literature before suggesting avenues for further research.

2 Background and Hypotheses

In our theorizing, we reason that resource leverage internationally enables SMEs to benefit from firm- and country-specific advantages, with the latter relating to both the SME's home and host countries. In turn, SMEs experience growth improvements from exploiting location-specific advantages (1) (Dunning, 2000). This leverage of resources, in turn, defines how an SME's internationalization affects its growth. Because SMEs resort commonly to exporting in their internationalization efforts (Kuivalainen et al., 2012; Leonidou et al., 2010; Love & Roper, 2015; Mansion & Bausch, 2020; O'Farrell et al., 1998; Westhead et al., 2002) to foster growth (D'Souza & McDougall, 1989), we operationalize an SME's degree of internationalization as its exporting intensity. Then, we show the deployment of DCs allows an SME to leverage its resources internationally to sustain or grow over time. Although an SME's pattern of firm- and country-specific advantages - along with ensuing location - specific advantages - defines the growth implications of its internationalization, by determining a suitable degree of internationalization (i.e., portfolio of international markets), DCs specify how the SME attempts to leverage such a pattern and the embedded location-specific advantages. Furthermore, we argue that an SME's R&D and collaborative intensities condition the extent to which it can benefit from leveraging its resources internationally by facilitating leverage of location-specific advantages that draw on its firm- and home/host country-specific advantages. In the following sections, we explain these arguments in depth.

2.1 Dynamic Capabilities and Internationalization

Firms expand into international markets as a key growth strategy (Chang & Wang, 2007). In line, the DC perspective highlights a firm's functioning over time and its performance and growth. It explains how firms leverage their resources internationally to sustain or enhance their performance (Altintas et al., 2022; Luo, 2000; Swoboda & Olejnik, 2022; Teece, 2014). For this reason, DCs have received significant attention in the strategic management and international management literature (Arikan et al., 2022; Drnevich & Kriauciunas, 2011; Fainshmidt et al., 2016). Importantly, not only do Matysiak et al. (2018) reinforce that internationalized firms' DCs allow them to sustain or grow their performance over time, they further explain that current theorizing in international business on the performance implications of firmand country-specific advantages provide the decision logics that underlie the reasoning embedded in DC deployment in firms, and as we argue also in SMEs.

Whereas DCs can be focused on corporate- or business-level strategic change (Wilden et al., 2016), extant literature rarely distinguishes between the two foci. Corporate-level DCs govern a firm's degree of vertical and/or horizontal integration and degree of related and/or unrelated diversification. In the context of an SME, these DCs therefore also determine its degree of internationalization to achieve the SME's overall growth objective. In this way, corporate-level DC deployment encapsulates the identification, evaluation, and strategic change of an SME's exporting mix. It concerns the SME's degree of market diversification in consideration of the domestic markets that it sells to and international markets that it exports to. Specifically, it determines whether and where to export to and whether to change the mix and/or emphasis that an SME places on exporting to maintain or grow exporting sales relative to domestic sales. Business-level DCs on the other hand support strategic change in individual product and/or country markets where an SME may leverage its resources by, for example, putting in place and implementing suitable, possibly country-specific, product configurations and/or marketing and sales capabilities to foster revenue growth in these individual markets. Accordingly, our theorizing considers corporate-level DCs as predicting an SME's degree of internationalization, and corresponding with business-level DCs reasoning, R&D intensity and collaborative intensity as...

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