Value chains, knowledge isolation, and performance in internationalizing SMEs

Abstract

We examine various forms of foreign knowledge generation and their impact on performance through geographic dispersion and coordination of value chains in internationalizing small and medium-sized enterprises (SMEs), particularly in traditionally internationalizing firms (TIFs) and early internationalizing firms (EIFs). Building on the knowledge isolation mechanism, we develop a model and hypotheses and examine it using structural equation methodology based on a survey of 288 internationalizing SMEs. We find that both dispersion and coordination generate foreign knowledge in TIFs, while coordination is key for EIFs. Another important finding is that TIFs benefit from enhanced performance through local knowledge, while EIFs benefit from internationalization knowledge. These results are apparently attributable to the existence of an underlying isolation mechanism affecting knowledge. The local knowledge of TIFs generated in geographically dispersed and coordinated value chains is difficult for competitors to imitate, thus safeguarding performance and providing evidence that TIFs benefit from a knowledge isolation advantage of geography. For EIFs, internationalization knowledge safeguards performance by providing a knowledge isolation advantage of rapidness based on accelerated foreign expansion that is difficult to replicate. The findings offer business managers valuable insights into managing value chains and, consequently, generating knowledge that has performance implications.