The Internationalization Intention of Small and Medium-Sized Enterprises: The influence of Product and Process Innovation

Abstract. The contribution of SMEs to the national GDP is dominant, however the level of export from this business group is relatively small. Numerous factors related to internal and external factors contribute to the low SMEs participation in exporting their products to global markets. Firms undertake international activities gradually from the initiation stage to the growth stage. In the initiation stage, firms establish their intention to make internationalization. This study focuses on the initial stage because of the small number of SMEs that have made internationalization. Previous studies demonstrate that the innovation factor has a significant effect on the internationalization intention of SMEs, however the innovation is considered as a black box. The purpose of study is to uncover a black box of innovation by analyzing dimensions of innovation factor and to develop a model that explains the relationship between those dimensions and the internationalization intention. We posit that product and process innovation as dimensions of innovation have positive influence on the internationalization intention, and process innovation has a moderating role in the relationship of product innovation and internationalization intention. A field study by distributing questionnaires to SMEs was conducted and the collected data was used to analyze the model by Partial Leas Squares – Structural Equation Modeling (PLS-SEM). The results show that product and process innovation have significant effect on the internationalization intention with coefficients of 0.256 and 0.573 respectively. We also find that process innovation has a significant moderating role in the relationship of product innovation and internationalization intention.Keywords: Innovation; Internationalization intention; Product and process innovation; SMEs