1. ¹Department of Strategic Management & Organization, Gary S. Holmes Center for Entrepreneurial Studies, Carlson School of Management, University of Minnesota, Minneapolis, USA
2. ²Nottingham University Business School, England, UK
3. ³UQ Business School, Colin Clark Building, University of Queensland, Brisbane, Australia

Correspondence: Shaker A Zahra, Department of Strategic Management & Organization, Gary S. Holmes Center for Entrepreneurial Studies, Room 3-428, Carlson School of Management, University of Minnesota, 321 19th Avenue South, Minneapolis MN 55455, USA. Tel: +(612) 626-6623; Fax: +(612) 626-1316; E-mail: zahra004@umn.edu

Abstract

Faced with rising competition in their domestic markets and attracted to opportunities in foreign markets, smaller and medium-sized enterprises (SMEs) are increasingly looking towards internationalization as a means of creating and sustaining competitive advantage. This has heightened researchers' interest in examining the benefits of internationalization beyond just financial outcomes. Internationalization can promote learning and the accumulation of the knowledge, skills and capabilities that SMEs need to survive and prosper. Learning and knowledge accumulation can also improve SMEs' product innovations. Using data from 384 US-based SMEs, we find that having a wider international market scope exposes SMEs to a rich network of information that encourages and enhances future product innovation. Similar results are observed when SMEs use high control or high involvement modes of entry in foreign markets. Our analyses also show that social knowledge magnifies and strengthens the effects of international market scope and mode of entry (high control as well as high involvement) on SMEs' product innovation.