Managing internationalization and innovation tradeoffs in entrepreneurial firms: Evidence from transition economies

For entrepreneurial firms (EFs), internationalization and innovation present two major avenues for growth. Prior research, based primarily on EFs from advanced economies, demonstrates mixed insights for the relationship between these strategies. A deeper understanding of the tradeoffs involved in the internationalization-innovation relationship may help better comprehend the issue. In this study, we draw on the organizational learning and capabilities-based literatures to examine the relationship in the context of EFs in transition economies (EFTEs). Our findings suggest that in EFTEs, internationalization is negatively associated with the likelihood of innovation. We also find that three knowledge-based capabilities of EFTEs (absorptive capacity, appropriation capability, and managerial capability) positively moderate the aforementioned negative relationship. We do not find any evidence of reverse causality (EFTE innovation impacting internationalization). Our research provides novel insights to the IE literature by shedding light on the internationalization–innovation tradeoffs that EFTEs experience.