A Dynamic Model of Internationalization and Innovation in Emerging Market Enterprises: Knowledge Exploration, Transformation, and Exploitation.

VerfasserShen, Suqin

1 Introduction

Internationalization and innovation are two crucial strategies for emerging market enterprises (EMEs) to survive and prosper (Piperopoulos et al., 2018; Wu et al., 2016; Xie & Li, 2018). Over the last few decades, firms from emerging economies such as China, Russia, Brazil, and India have been active in international markets and become major players in the global economy (Cuervo-Cazurra et al., 2014; Kumar et al., 2020). Concurrently, to address their latecomer disadvantages, EMEs are trying to catch up with their developed world competitors by engaging intensively in innovation activities (Piperopoulos et al., 2018; Xie & Li, 2018). According to the Global Innovation Index 2020 report (GII, 2020: 24): "This year, the geography of innovation is continuing to shift, as evidenced by the GII rankings. Over the years, China, Vietnam, India, and the Philippines are the economies with the most significant progress in their GII innovation ranking over time. All four are now in the top 50." As EMEs are increasingly involved in both internationalization and innovation activities, an important question for scholars, practitioners, and public policy makers is: how do the two strategies of internationalization and innovation in EMEs influence each other over time? This question is also important in the light of the United Nations' Sustainable Development Goals that recognize the significance of internationalization and innovation in securing global economic development, peace, and prosperity for all (Lewis et al., 2021; Montiel et al., 2021).

Previous research on the relationship between internationalization and innovation is mainly based on two hypotheses: the self-selection hypothesis and the post-entry hypothesis. According to the self-selection hypothesis, innovation is a pre-requisite for firm internationalization. For example, early IB studies on multinational enterprises from advanced economies assume that firms expand overseas to exploit their existing ownership advantages such as innovation resources (e.g., Dunning, 1980; Vernon, 1966). In contrast, the post-entry hypothesis regards internationalization as a contributing factor for firm innovation. For example, recent studies suggest that internationalization facilitates organizational learning and knowledge sharing which are important building blocks for innovation (e.g., Chang et al., 2019; Love & Ganotakis, 2013; Tse et al., 2017). In addition, while most studies suggest a positive relationship between internationalization and innovation, some others find a negative or a statistically non-significant relationship, especially in small or resource constrained firms (Bahl et al., 2021; Kumar, 2009). There is therefore a continuing debate on the direction and sign of the relationship between internationalization and innovation, that is, whether innovation leads to internationalization or vice versa, and are they positively or negatively associated.

Notwithstanding the extensive literature on the internationalization-innovation relationship, existing research tends to take a static view to investigate this research question (Chiva et al., 2014). They either focus on the impact of innovation on internationalization (Azar & Ciabuschi, 2017; Oura et al., 2016), or on the effect of internationalization on innovation (Chang et al., 2019; DAngelo et al., 2020; Piperopoulos et al., 2018). Although a few papers (e.g., Filipescu et al., 2013; Monreal-Perez et al., 2012) have investigated the relationship between internationalization and innovation in both directions, they examine the post-entry and self-selection hypotheses independently, and the results remain mixed. As a result, how internationalization and innovation (input and output) influence each other dynamically remains unclear. Dynamic relationship here refers to the evolution of the relationship between internationalization and innovation over time. Furthermore, earlier studies, especially on the innovation to internationalization link are mainly based on firms from developed markets (Azar & Ciabuschi, 2017; Henley & Song, 2020), and these theories and empirical findings may not be generalizable to understand the internationalization-innovation relationship in EMEs. In contrast with firms from developed markets, EMEs become more innovative after going international, and often take a different trajectory to internationalize (Kumar et al., 2020; Luo & Tung, 2018). In general, EMEs lag developed country firms and lack experience in both internationalization and innovation activities (Buckley & Hashai, 2014; Nuruzzaman et al., 2019). Hence, there is a critical need for additional research focusing specifically on EMEs to understand the unique and dynamic nature of the internationalization-innovation phenomena in this specific context.

In addition, state ownership of large international enterprises is common in emerging markets, with governments continuing to play a critical role in national economic activities and firms' decision-making (Cuervo-Cazurra et al., 2014; Feng et al., 2018). For example, China has 145 firms on Fortune Global 500 list in 2022, more than half of which are central/local state-owned enterprises (SOEs). Likewise, the SOEs in Vietnam are trying to reach out to the world to seize more opportunities (Vietnamnet, 2022). In response to this trend, scholars are increasingly interested in understanding the impact of state ownership on EME activities, mainly from an institution-based perspective (Hong et al., 2015; Liang et al., 2015). In recent years, researchers have also revisited state capitalism, focusing on whether government control may stimulate or hinder firms' competitive advantage, and how various forms of state ownership affect firm decisions (e.g., Bass & Chakrabarty, 2014; Cui & Jiang, 2012). With growing importance of SOE internationalization in international business (IB) research, it is crucial to understand the effect of state ownership on the determinants and outcomes of EME internationalization (Cuervo-Cazurra et al, 2014; Wang et al., 2012).

Despite growing interest in the role of government in EMEs' internationalization and innovation, there is limited research that examines the impact of state ownership on the internationalization-innovation relationship, especially in the context of developing countries. From an institution-based view, state ownership enables EMEs to gain political legitimacy, and to enforce business contracts or stop unlawful imitations by foreign rivals (Yi et al., 2017; Zhou et al., 2017). Some other studies, however, have examined the costs of business-government relationship (Meyer et al., 2014), and argued that political connections with the home country government could be counterproductive (Zhou et al., 2017). It is therefore important to examine if, on balance, the state has a positive or a negative moderating effect on the relationship between internationalization and innovation.

In sum, the objective of our study is to address two key research questions: (1) what is the nature of the dynamic relationship between internationalization and innovation in EMEs, and (2) how state ownership moderates the internationalization-innovation relationship. Overall, our study seeks to make three key contributions: First, we develop a dynamic theory of the two-way relationship between internationalization and innovation. Unlike previous research that takes a static view to understand the relationship between internationalization and innovation, our study unpacks the "black box" by illustrating how internationalization and innovation contribute to each other over time in the context of EMEs. Second, we identify three phases in the dynamic relationship, namely, knowledge exploration, knowledge transformation, and knowledge exploitation. By doing so, we introduce knowledge transformation as the bridge between knowledge exploration and exploitation activities. Although knowledge exploration and exploitation have attracted extensive attention in prior research, how firms make the transition between these two activities has been largely neglected. Third, our study investigates how the institution of the state can help or hinder the internationalization-innovation link. By doing so, we contribute to the literature on internationalization and innovation by including firm-level institutional variable (that is, state ownership) as a crucial contextual factor that enhances or weakens the focal relationship between internationalization and innovation. From a practical perspective, our study will not only help managers in designing effective internationalization and innovation strategies for EMEs, but also guide policymakers in crafting appropriate state intervention to advance the innovation and internationalization agenda of EMEs.

The remainder of this paper is organized as follows. The following section presents a brief literature review of the major theories on the relationship between internationalization and innovation. Next, we provide the theoretical background and hypotheses for our study. We then present the methods, including data, variables, and our analytical approach to test our hypotheses. This is followed by our results and their discussion, including how our study contributes to international business theory, practice, and policymaking. We conclude with our study's limitations and possible directions for future research.

2 Existing Research on the Relationship Between Internationalization and Innovation

Innovation and internationalization constitute two alternative pathways for firms to grow and utilize their resources (Ansoff, 1965; Prashantham, 2008). As both forms of strategies are built upon firm resources and capabilities, growth along one dimension is likely to be systematically associated with growth along the second one (Chiva et al., 2014; Kumar, 2009). Therefore, scholars in international business (IB) and innovation...

Um weiterzulesen


VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT