Pursuing Innovation: An Investigation of the Foreign Business Relationships of Swedish SMEs*
| Date | 01 October 2018 |
| Author | Dharam Deo Sharma,Emilia Rovira Nordman,Sara Melén Hånell,Daniel Tolstoy |
| Published date | 01 October 2018 |
| DOI | http://doi.org/10.1111/1467-8551.12315 |
British Journal of Management, Vol. 29, 817–834 (2018)
DOI: 10.1111/1467-8551.12315
Pursuing Innovation: An Investigation
of the Foreign Business Relationships
of Swedish SMEs*
Sara Mel´
en H˚
anell,1Emilia Rovira Nordman,1,2 Daniel Tolstoy3
and Dharam Deo Sharma1
1Department of Marketing and Strategy, Stockholm School of Economics, P.O.Box 6501, S-113 83, Stockholm,
Sweden, 2School of Business, Society and Engineering, M¨
alardalen University, P.O. Box 883, S-721 23, V¨
aster˚
as,
Sweden, and 3House of Innovation, Stockholm School of Economics, P.O. Box 6501, S-113 83, Stockholm,
Sweden
Corresponding author email: emilia.rovira@hhs.se
The aim of this study is to contribute to the international business field and research on
the innovativeness of international SMEs, by addressing the followingresearch question:
Towhat extent and under which circumstancesdoes relationship connectedness aect per-
ceived innovativeness in international SMEs? Toanswer this question, the authors create
a model that examines the mediating eects of two types of foreign business relationship
strategies: relationship dierentiation and relationship investments. In order to create
this model, the authors draw upon behavioural internationalization process theory, net-
work theory and research into SMEs. The findings reveal that relationship investments
mediate the eect relationship connectedness has on perceived innovativeness. This study
contributes to research about the innovativeness of international SMEs by showing that
being connected to resources in the network is not, in itself, a guarantee of becoming or
remaining innovative in foreign markets.
Introduction
Studies in international business have reported
significant relationships between a company’s
innovativeness and its performance. The innova-
tiveness impacts export performance (Boso et al.,
2013), international market entry-mode selec-
tion (Ratten and Tajeddini, 2017), international
diversification (Contractor, Kumar and Kundu,
2007) and performance (Lu and Beamish, 2004).
Scholars argue that it is innovativeness which lays
∗The authors have contributed equally to this paper.
The authors are grateful for financial support from the
Swedish research Council (Grant No. 421-2013-949) and
The TorstenS ¨
oderberg Foundation.The authors are also
gratefulto Professor Marc Goergen and three anonymous
reviewers for their helpful comments on earlier drafts of
this article.
the foundation for small companies: for their abil-
ity to identify opportunities and expand abroad
(Knight and Cavusgil, 2004; McDougall, Shane
and Oviatt, 1994). Qualitative studies of interna-
tional SMEs typically emphasize the importance
of their connections to business networks for en-
hancing resource access, which can increase their
innovativeness (Crick and Jones, 2000; Sharma
and Blomstermo, 2003). The relationship between
networks and innovativeness, however, has often
been discussed in general terms, with little regard
for the conditional eects that shape this relation-
ship in an international context. Recent research
has, indeed, demonstrated that the eects of con-
nectedness on innovativeness in internationalizing
companies are mediated by other constructs and
that our knowledge of these mediating constructs
is still limited (Nordman and Tolstoy, 2016).
C2018 The Authors.British Journal of Management published by JohnWiley & Sons Ltd on behalf of British Academy
of Management. Published by John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main
Street, Malden, MA, 02148, USA.
This is an open access article under the terms of the Creative Commons Attribution-NonCommercial License, which
permits use, distribution and reproduction in any medium, provided the original work is properly cited and is not used
for commercial purposes.
818 S. M. H˚
anell et al.
The aim of this study is to contribute to the
international business field and research on
the innovativeness of international SMEs, by
addressing the following research question: To
what extent and under which circumstances does
relationship connectedness aect perceived inno-
vativeness in international SMEs? To answer this
question, we create a model that examines the
mediating eects of two types of foreign business
relationship strategies by which companies can
proactively extract value from networks: that is
to say, relationship investment and relationship
dierentiation.
Network theory describes that innovation is
most likely to occur under two conditions: either
when relationships are highly embedded or when
relationships are disparate from other relation-
ships and contain some type of novelty (Adler and
Kwon, 2002; Rost, 2011). These two contrasting
conditions are manifested in this study by the
concepts of relationship investment and relation-
ship dierentiation. Relationship investment is
defined here as a strategy by which companies
commit resources to a business relationship in
order to enhance cooperation and mutual ori-
entation (Dyer and Singh, 1998; Jonsson and
Lindbergh, 2010; Verwaal and Donkers, 2002).
The concept refers to the embeddedness mecha-
nism that, according to one dimension of network
theory, is instrumental in diusing knowledge
for innovative purposes (Noordho et al., 2011).
Relationship dierentiation is defined here as a
strategy by which companies reconfigure their
business models to match the specific needs and
wants of a particular customer or partner (Miller
and Friesen, 1982; Nasution et al., 2011; Tolstoy,
2014). Relationship dierentiation implies a
disparate relationship in the network, which relies
upon a distinct resource base. One dimension of
network dynamics, which the school subscribing
to the structural embeddedness view (e.g. Burt,
1992) has particularly investigated,suggests dier-
entiation as a beneficial condition for innovation
since it exposes companies to non-redundant
knowledge resources (Odlin and Benson-Rea,
2017).
The premise for this study, therefore, is that
innovativeness of internationalizing SMEs is
most likely to occur in settings where companies
have invested in close relationships or in cases
where business relationships are dierentiated
and characterized by the exploration of new
business solutions. Relationship connectedness
has its origin in network theory, which claims that
networks can be purposefully used to develop
business (Gulati, Nohria and Zaheer, 2000). The
term is defined as the degree to which a company
relies upon connected foreign business relation-
ships when engaging in international business in
a specific foreign market (Nordman and Tolstoy,
2016). The connected business relationships
form a network, which can enable companies
to access and leverage resources relevant for
international business (Johanson and Vahlne,
2009). Perceived innovativeness is defined as the
company’s perceived innovative capability to
produce innovative outcomes within a foreign
business relationship (Hurley and Hult, 1998;
Knight and Kim, 2009; Wang and Ahmed, 2004).
Hence, we focus on organizational innovativeness
as being an aspect of organizational culture,which
is reflected by the perceptions of employees and
managers.
For the purpose of this study, we use data
from 188 SMEs in Sweden. Our results intend
to contribute to research on the innovativeness
of international SMEs. The role of networks in
the innovation activities of businesses has been a
frequently discussed topic in this literature (e.g.
Acosta, Crespo and Agudo, 2018; Coviello, 2006;
Knight and Cavusgil, 2004; Knight and Kim,
2009; Montoro-Sanchez, Diez-Vial and Belso-
Martinez, 2018; Nordman and Tolstoy, 2016;
Nyuur, Brecic and Debrah, 2018; Yli-Renko,
Autio and Sapienza, 2001). By investigating this
relationship through conceptual modelling, we
can make an important contribution to this area of
study. While the existing literature tends to discuss
the relationship between networks and innova-
tiveness in general terms, we use network theory
to investigate the mediating eects that shape this
relationship. Drawing on two contrasting network
conditions that have been proposed to enhance
innovation (that is to say, relationship investments
and relationship dierentiation), we can gener-
ate strategic insight into how internationalizing
SMEs can organize foreign business relationships
to optimize innovativeness. In summary, our
study is able to take the ongoing discussions in
this research area one step further: by showing
that being connected to resources in the foreign
market network is not, in itself, a guarantee of
becoming or remaining innovative in foreign
markets.
C2018 The Authors.British Journal of Management published by John Wiley & Sons Ltd on behalf of British
Academy of Management.
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