Globalization is radically reshaping the business environment of Small and
Medium Enterprises (SME). First, globalization tends to benefit large companies in particular.
Scale advantages allow large companies to exploit new opportunities from globalization
earlier, faster and more comprehensively, expanding their access to new markets and
resources, including knowledge. As a consequence, SMEs in industrialized countries are faced
with increasing price and technology competition from large companies in their home
markets. At the same time, enterprises from emerging economies start to enter these markets based
on price advantages, and their expanding demand of resources increases input prices for
many commodities, consequently increasing production costs in industrialized countries.
Moreover, global shifts in market dynamics tend to restrict growth opportunities of SMEs as long
as they focus on their home market.
SMEs may respond to these challenges through various ways. One option is to use
business opportunities outside their home markets more intensively and more broadly, i.e., to
actively participate in the process of globalization. Another option is to strengthen their
innovative capabilities in order to avoid price competition and to differentiate their products from
those of the new competitors from abroad. Combining both strategies, i.e.,
internationalization of innovation activities may be particularly beneficial to SMEs from industrialized
countries. First, internationalizing innovation will allow them to enlarge their knowledge base
by sourcing knowledge, technology and skills from other locations than their home
market, potentially contributing to more ambitious and more efficient innovation efforts.
Secondly, approaching new markets often requires innovation designs that are adjusted to the
specific environment in these markets. Developing or adopting such innovations at the location
of potential customers may be more effective. Thirdly, market success of new products not
only depends on technological superiority or customer-tailored solutions, but also on
price-efficiency. Utilizing global locations for producing innovations, and upgrading
existing production activities abroad by process innovation may both contribute to an
improved innovation performance of SMEs. |
