Impact of various modes of internationalisation on innovation capability . The case of manufacturing SMEs in emerging markets-Vietnam

Title: Impact of various modes of internationalisation on innovation capability. The case of manufacturing SMEs in emerging markets Vietnam Name: Nhan Ton Nguyen Affiliation: School of Social Sciences, Heriot-Watt University Year of enrolment: 2018 Expected final date: September 2021 E-mail address: ntn2@hw.ac. uk The relationship between internationalisation and innovation has received increasing attention from international business researchers and managers over the past decade. Most studies have reported the positive influence of internationalisation on innovation at the firm level, e.g. Bloom et al. (2015) and Higon and Driffield (2011) documented the positive impact of imports and exports on innovation, respectively. Many developing countries are now interested in finding the effective ways of encouraging firm innovation through internationalisation, especially for SMEs (UNCTAD, 2007). However, only a few studies investigate the influence of internationalisation on SME innovation in developing or emerging economies: e.g. Abubakar et al. (2018) is the first empirical research paper which used the cross-sectional data of five countries in Sub-Saharan Africa to examine the impact of internationalisation on SME innovation in the context of the least developed countries. Theoretically, firms that invest more in R&D are viewed as having greater capacity to be innovative, according to the knowledge production model (Griliches, 1979; Acs, 2002). However, SMEs in developing or emerging countries typically have limited internal resources needed for innovation and face with weak domestic markets; therefore, utilisation of external resources via internationalisation is particularly important for small firm innovation in developing countries. Based on national system of innovation theory (which confirms that information and knowledge collection for innovation of small firms often take place in a social context, outside the firm) and especially the institutional theories which argue that innovative behavior of small firms in developing or emerging countries needs to be examined in the context in which it occurs (Capello, 1999; Welter and Smallbone, 2011), this paper is the first empirical research study that investigates the influence of different modes of internationalisation on the innovation of SMEs in the context of emerging countries. The paper uses firm-level panel data from the Viet Nam SME survey (CIEM, ILSSA, UCPH, and UNUWIDER, year 2011, 2013 and 2015), which tracks over 2500 manufacturing enterprises from nine provinces over time. A logit model for panel data is used to analyse the data since the dependent variables (product and process innovation) take only two possible values. Three modes of internationalisation are used: exporter, importer and acting as suppliers to international customers, i.e. outsourcee (Altomonte et al., 2013; Abubakar et al., 2018). R&D is the moderator variable since it plays an important role in firms’ innovation performance and might influence the impact that internationalisation has on the innovation performance of firms (Ren et al., 2015; Raymond et al., 2010). Control variables: firm age, firm size, higher educated workforce, competition, member of business association and access to finance (Abubakar et al., 2018; Bocquet et al., 2013). This study contributes to the literature on internationalisation and innovation by showing that exporting and importing have a significant influence on new process innovations while acting as suppliers to international customers has a weak impact on new product innovations of Vietnamese SMEs. 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