Performance implications of combining innovation and internationalization for Korean small- and medium-sized manufacturing firms: an exploration-exploitation perspective

Abstract

While previous studies on firms' innovation and internationalization have focused on the causal relationship between the two strategies, less is known on whether they are complements or substitutes for enhancing small and medium-sized enterprise (SME) performance. We introduce an exploration-exploitation perspective on the two strategies and examine how the relative weight of explorative versus exploitative innovation and of international versus domestic market scope affect performance, individually and in concert. Analyzing data from 579 South Korean manufacturing SMEs, we find that firms should balance explorative and exploitative orientation within and across the innovation and market scope domains to enhance financial performance. These findings are in contrast to results from previous studies on large companies and Western country firms and suggest that SMEs from newly industrialized Asian countries need to closely align their innovation and internationalization strategies to mitigate the liabilities of foreignness and smallness.