Although there is a growing interest in entry mode choice under different sources of uncertainty, information on how micromultinationals (mMNEs)[1] make an entry mode choice in foreign markets remains rare. Dealing with uncertainty and making entry mode choices under uncertain conditions becomes even more challenging for mMNEs that are subject to the liabilities of foreignness and smallness, and, therefore, they are more likely to make costly mistakes choosing entry modes and may sometimes even fail[2] (Stoian, Dimitratos, & Plakoyiannaki, 2018). Although mMNEs are more resource constrained compared to MNEs, they still use advanced modes of entry in making investments in foreign markets (Dimitratos, 2009; Dimitratos et al., 2014; Dimitratos, 2021); mMNEs, by definition, are required to use advanced (non-exporting) modes of entry compared to large MNEs or SMEs who rely on exporting only (Dimitratos, 2003; Ibeh et al., 2004).

To make future investment decisions, mMNEs need to adopt rational decision making since they tend to have fewer options to invest in due to scarcity of resources, and they cannot afford any mistakes in selecting entry mode choices (Wooster et al., 2016). One of the most rational approaches in the international business literature is real options reasoning (ROR) (Child & Hsieh, 2014). ROR refers to the process of embracing an option-based view of investment decision-making recognising the significance of proactive planning in strategy (Miller, 2002). It refers to “how firms make decisions regarding investments when the future is uncertain” (Brouthers et al., 2008, p.940) and options can be considered as contingent decisions (Child & Hsieh, 2014). mMNEs can choose between different investment decisions and the best way to enter a foreign market on a provisional basis (Chi et al., 2019). A fundamental concept in ROR is strategic flexibility – i.e., a firm-specific capability that captures the ability of the firm to switch its operations in uncertain conditions, gained by operating in multiple markets and enabling resource redeployment as it allows mMNEs to respond quickly to external uncertainty, providing various options (Ipsmiller et al., 2021). One of the key enablers of strategic flexibility include multinationality (i.e., the number of markets that mMNEs operate in). This strategic flexibility allows mMNEs to shift resources, optimizing foreign market investments and mitigating uncertainties (Ipsmiller et al., 2021).

This study not only explains the behaviour of mMNEs in the real options stream, improving our understanding on how entry mode choices are affected by different sources of uncertainty and multinationality, but it also unpacks how home-country level of development of those mMNEs plays a role in their perception of which source of uncertainty is important, explaining their preference of using WOS in a way that helps them to mitigate different uncertainties. Notably, literature also suggests that emerging markets face different sources of uncertainties in the home country that may hinder their growth choices due to dysfunctionalities compared to advanced markets (Xu & Meyer, 2013). Paradoxically, although the real options studies have identified the crucial role of home-country level of development (Sears, 2019), the real options studies that investigate how home-country level of development moderates the relationship between different sources of uncertainties and entry mode choices, comparing advanced with emerging markets, remain rare.

To tackle the research gaps, in this quantitative study, we test our hypotheses on a dataset[3] of 1,200 mMNEs[4] (from 44 different countries) that have been expanded between 2003 and 2020, aiming to answer the following research question: To what extent does uncertainty impact on entry mode choice (ownership choice) of mMNEs, and how is this moderated by multinationality, and home-country level of development? Highlighting differences between different types of uncertainties, we find that mMNEs appear to reduce their ownership associated with their entry mode choice as different sources of uncertainties increase. We also propose that multinationality plays a crucial role in entry mode choices under uncertainty. We further sharpen our understanding about the impact of different sources of uncertainty on the ownership choices of mMNEs and show that home-country level of development is a significant driver for their entry mode choices, suggesting that advanced market mMNEs tend to choose a higher level of equity in WOS under uncertainty. Our findings also show that emerging markets mMNEs follow a conservative approach by choosing low commitment operation modes (i.e., IJVs) entry modes rather than high commitment modes (i.e., WOS) to cope with host country economic uncertainty.

Our study makes several theoretical and practical contributions. Drawing on the real options theory, our study empirically contributes to a still nascent but growing stream of research in international business, which focuses on which uncertainty factors may affect the ownership choices of mMNEs, and to what extent, as they expand abroad (Ibeh et al., 2004). Our study also theoretically integrates home-country level of development into real options reasoning (Sears, 2019). It attempts to bridge a gap in the existing literature by providing evidence about the real options logic of both advanced and emerging markets mMNEs in one study (Sears, 2019). Existing literature has not yet to apply real options reasoning to investigate mMNEs’ entry mode choices in a great number of emerging markets, and, therefore, this study aims to fill this gap, considering that the emerging markets provide a suitable context to apply this approach and make the relevant comparisons with the advanced markets (Tong & Li, 2008). By exploring the different behaviour of both advanced and emerging market mMNEs, this study contributes to the ongoing debate on the significance of the home country of location (Santangelo & Meyer, 2011). Our study also has a practical contribution as it helps the top management and the owners of mMNEs to choose the most suitable entry mode in a foreign market. Given the increasing unpredictability of the external environment (e.g., economic crises, fluctuations in product prices or demand variations, and other disruptive phenomena), our work helps top managers and owners of mMNEs choose the most suitable entry mode, considering the trade-off between what they can afford to do due to mMNEs' resource scarcity, and the costs associated with such a significant decision.

Our study is not without limitations. First, our study includes the assumption that our mMNEs have the choice to make an investment (Brouthers et al., 2008). However, this can be regarded as a limitation given that not all mMNEs have the required resources to enter a foreign market. There is a limit to how many countries and in how many options an mMNE can invest, as they might have limited resources, suffering from the liability of smallness (Leiblein, 2003). Second, consistent with previous studies, we included in our study two main types of entry modes, namely IJVs and WOS as has been suggested in the study by Wooster et al. (2016) and by the fact they are more frequently used by mMNEs (Ibeh et al., 2004). It would be helpful for advancing the real options literature if future studies include in their sample other types of advanced entry modes such as strategic alliances, and mergers and acquisitions (M&A).

[1]Small and medium enterprises (SMEs) that engage in value-adding activities across multiple countries through investment, contractual modes, and cooperative arrangements (Dimitratos et al., 2003, p.165). SMEs are engaged in advanced market entry modes, such as international joint ventures, international strategic alliances, and foreign subsidiaries are called micromultinationals (mMNEs), orchestrating their cross-border value-added activities in multiple locations (Dimitratos et al., 2003; 2009).

[2]According to the US Bureau of Labor Statistics (2021) regarding SMEs, 20% failed in the first year, 50% within five years, and 65% within 10 years.

[3]Our secondary data is derived from the FDI Markets Database, which is a service provided by the Financial Times.

[4]mMNEs employ less than 250 employees (European Commission, 2003) and use advanced (non-exporting) foreign market entry modes (Dimitratos et al., 2003).

The focus of this research was to investigate how Chinese sales subsidiaries embed themselves in the UK electronic market to enhance firms’ competitive advantage. The key research objectives were: (1) To identify the types of embedded ties that Chinese sales subsidiaries embed in the UK electronics market, as well as the underlying reasons for such embeddedness. (2) To identify the enablers that facilitate Chinese sales subsidiaries’ embedding into the UK electronic market. (3) To examine how Chinese sales subsidiaries interact with their local partners within local embedded ties. (4) To identify the outcomes of the local embeddedness of Chinese sales subsidiaries in the UK electronics market.
This research builds on the previous research on the subsidiary’s local network embeddedness as a source of firms’ competitive advantage (Andersson et al., 2001, 2002; Figueiredo, 2011; Isaac et al., 2019; Ferraris et al., 2020) and the literature on relational network embeddedness (Uzzi, 1996; Uzzi and Gillespie, 2002; Uzzi and Lancaster, 2003; 2004).
This research addresses the following research gaps: (1) Although the previous IB research indicate that a higher level of local embeddedness is positively related to MNEs’ performance (Andersson et al., 2002; Figueiredo, 2011; Isaac et al., 2019), embeddedness is a strategic choice and a dynamic process. There is a lack of in-depth qualitative research that focuses on the subsidiary embedding process, specifically how the subsidiary is embedded in external networks and how this subsequently improves the subsidiary’s competitive advantage (Nell et al., 2010). (2) Previous IB studies focus upon R&D subsidiaries and highlight their role as “centre of excellence” within the MNEs (Figueiredo, 2011; Achcaoucaou et al., 2014). With the globalisation of sales, sales are no longer just transactional selling relationships. A firm’s relationships with counterparts at host markets are increasingly perceived as a key component of its competitive advantage (Reichstein-Scholz et al., 2021). However, there is still a lack of understanding about the local embedding process of sales subsidiaries in current IB studies. (3) The local network embedding strategies of Chinese electronic subsidiaries in the UK market are not well-understood. Local embedding is highly important for the sales subsidiaries of leading Chinese electronics MNEs because they have upgraded from electronic product manufacturers to brand owners in the global value chain (GVC), and they are expanding into fiercely competitive developed markets such as the UK, where relationships with organisations in the host market are necessary for their brand competitiveness and market expansion (Sturgeon and Kawakami, 2010, 2011; Su et al., 2020).
This study adopts a qualitative, inductive approach, and is based on a multiple case study. Finding suitable case studies and access was challenging at first. Initially 7 cases were approached. Four sales subsidiaries were finally selected after applying the following selection criteria: (1) The subsidiaries had to be autonomous subsidiaries, as they are capable to influence their developmental pathways at global corporate networks (Cantwell and Mudambi, 2005). (2) The selected companies had to be Chinese electronics subsidiaries mandated with market expansion in the UK, as the same geographic area provides similar opportunities for becoming embedded within the local environment (Luo and Lemański, 2016; Figueiredo, 2011). (3) The selected subsidiaries needed to have been operating in the UK for a specific duration, affording them sufficient time to establish and develop deeply embedded ties (Håkansson and Snehota, 1995). (4) The headquarters of the subsidiary had to be a private firm, as private firms exhibit a greater appetite for host country markets and strategic assets compared with state-owned firms (Amighini et al., 2013). (5) The subsidiaries were required to be brand owners rather than purely product manufacturers that conducting OEM and ODM business (Su et al., 2020).
Sixteen semi-structured elite interviews and participant observation were adopted to collect primary research data (Welch et al., 2002). The participants of the elite interview in this study include managing director, country manager, heading of marketing, key account managers, sales managers, and marketing managers at the case subsidiaries, who were deeply involved in the local embedding activities. The interviews were collected in two rounds, first in 2018 and then in 2022, and capture changes in the international environment, such as the Covid-19 pandemic and the Russia-Ukraine conflicts, has influenced the outcomes of this thesis. The qualitative data analysis is based on the “Gioia methodology” (Gioia et al., 2013; Gioia, 2021). While this approach has been criticised ((Mees-Buss et al., 2022), this method enables the author successfully build theory from qualitative data.
Overall, the overarching findings of this study extend the understanding of subsidiary local network embeddedness as sources of firms’ competitive advantage literature (Andersson et al., 2001, 2002; Figueiredo, 2011; Ferraris et al., 2020; Vanninen et al., 2022) through providing a qualitative view of subsidiary local embedding process.
Firstly, this thesis successfully identified three types of locally embedded ties that sales subsidiaries allocate substantial resources to maintain in the UK: with local sales channels, with local marketing, PR, and social media agencies, and with local chambers of commerce and industry associations, respectively, and the reasons for selecting these relationships within the research context of this study. This clarification addresses the confusion highlighted by Andersson et al. (2001) regarding the strategic selection of local embedded ties, especially considering embeddedness as a “double-edged sword” (Uzzi, 1996, 1997).
Secondly, based on embedded ties with local sales channels is the most important yet most difficult to establish. This thesis successfully constructs a longitudinal embedded tie formation process model consisting of three iterative stages: embedded tie response, embedded tie negotiation and embedded tie sustain. This finding successfully fills the research gap regarding the relational embedded tie formation process in IB studies (Nell et al., 2010).
Thirdly, this thesis finds “regular interaction” and “networking” as two most important mechanism to maintain the embedded ties, which is in line with previous network studies in IB (Andersson et al., 2002; Shaw et al., 2017). This thesis further clarified based on the participants, content, purpose, and frequency of interaction and networking. It identified themes such as business-related interaction at the sales manager level, strategy-related interaction at the senior manager level, and so on.
Finally, one notable finding of this thesis is the embedded ties with local counterparts have enable the focal firms to enhance their competitiveness through enhancing their business performance (Andersson et al., 2002; Bresciani and Ferraris, 2016), innovation performance (Figueiredo, 2011; Isaac et al., 2019) and brand performance.
The subsidiary local embeddedness is a context sensitivity research area (Meyer et al., 2011). As suggested by Figueiredo (2011), same geographic area provides similar opportunities for becoming embedded within the local environment. Future research could explore whether there are variations in the narrative of subsidiary local embedding when there is a change in the host country. This study has focused on the electronics industry, and future research could also delve into in-depth investigations to examine how the narrative of subsidiary local embedding changes across different industries. Furthermore, as relational embeddedness is a double-edged sword (Uzzi, 1996, 1997), future research can delve into the side effects of local embeddedness.
This thesis provides recommendations for latecomers on: (1) how to establish local embedding strategy by leveraging firms’ resources; (2) how to effectively manage personnel at the operational level, including the role of local employees, to sustain crucial local partnerships; (3) how to enhance competitiveness in developed markets by leveraging various types of long-term local partnerships.
Firstly, based on longitudinal, in-depth interview data, this thesis provides a process model for the establishment and maintenance of long-term partnerships within IB research field using subsidiaries as the unit of analysis, drawing upon network theory and embeddedness theory (Nell et al., 2010; Meyer et al., 2020). Secondly, this thesis shifts the attention from R&D to sales subsidiaries when global sales are no longer just transactional selling relationships, and a firm’s relationships with counterparts at host markets are increasingly perceived as a key component of its competitive advantage (Reichstein-Scholz et al., 2021).

Purpose

In this thesis, the objective was to understand how host governments of developing countries can maximize the sustainable development contributions of FDI towards sustainable growth and development. It is argued and recommended in recent FDI and sustainable development discussions that, in order to maximise the contribution of FDI to the sustainable development of developing countries, the host governments of those countries need to understand the gains that they expect from FDI, as well as the motives and strategies of foreign investors coming to invest in their host economies, so that appropriate policies that attract the FDI that aligns with the host governments’ expectations can be adopted and implemented for maximum and sustainable FDI impacts. While these key components are relevant to advancing knowledge and contributing to the economic growth and sustainable development of developing countries, there is little exploration beyond the recommendation section of existing studies. This thesis took on the task of exploring these key areas in the context of African countries. Hence, the thesis focused on foreign firms, local firms, and the host governments.

Conceptual and/or Theoretical Arguments

First, I carried out a systematic literature review of the comparative motives and strategies of different foreign investors in Africa. The justification for this is that, although existing studies on this research phenomenon recommend that host governments need to understand the motives and strategies of foreign investors, there are several investors from different source countries that invest in various host countries. Assessing and identifying the motives and strategies of each of these investors require time and resources that these developing countries cannot afford, given their high reliance on external sources such as FDI. A literature review that synthesises existing studies will provide a comprehensive and detailed understanding of investment motives and strategies for policymakers, and will speed up policymaking decision aimed at attracting the right type of FDI that aligns with the host governments’ expectations. Thereby, improving their efforts towards maximising FDI contribution to sustainable development of their economies.

Second, I explored how host governments’ expected FDI benefits are moderated to specific FDI priorities as a result of individual countries’ differences in capacity and how this influences the impacts of the FDI received. In this thesis, it is argued that while host governments have an understanding of the various benefits to expect from FDI, there are differences in capacity in terms of the level of economic development and the consequent economic need and level of reliance on FDI, location dis(ad)vantages, and political capability that enables the host government to deploy policies that facilitate the attainment of expected FDI benefits. Therefore, only the benefits that the host governments have the capacity to facilitate will be prioritised. As a result, a policy capacity framework was developed based on a conceptualization of the level of economic development and consequent economic need and reliance on FDI, location dis(ad)vantages and political capability. This was used as a theoretical conceptualization for the discussion under this chapter.

Third, horizontal knowledge spillovers are considered to be one of the FDI benefits with significant sustainable development impact on the host countries, through positive productivity impacts on the local firms and industries. Particularly in studies carried out in Africa, it is often recommended that host governments need to work with local firms to appropriately identify how to support local firms and maximise the sustainable development impacts of FDI spillovers. I argue, in this thesis, that local firms will only pursue knowledge spillovers that they perceive have relevant productivity and competitive impacts on their operations, otherwise, they will not. Hence, I conceptualized a “relevant” horizontal knowledge spillovers process by exploring the process through which local firms identify and capture (internalise and utilise) knowledge spillovers that are “relevant” to their productivity and/or competitiveness, and the challenges they face in capturing these spillovers. This provides an avenue for host governments to provide adequate support for local firms and to maximise the contribution of FDI to the sustainable development of the host economies.

Lastly, I analysed existing investment policies adopted in nine (9) African countries and evaluated the effectiveness of these policies in facilitating host governments’ prioritised FDI benefits. While existing discussions in the field of international business have focused on recommending the adoption of appropriate policies to attract the right types of FDI that aligns with the host governments’ FDI expectations, they have largely ignored the evaluation of the effectiveness of existing policies in these countries in terms of attaining their goals. This evaluation will significantly contribute to practical policy advocacy and recommendations, especially in the context of the reality of these developing countries. Moreover, the essence of any policy deliberation is policy effectiveness.

Methodology and Findings

The first research area was explored following existing systematic literature review protocols; PRISMA and SPAR-4-SLR, and the findings from the analysis of the reviews show that the motives of foreign investors in Africa are similar but that they have different strategies. The second research focus was explored in the contexts of two African countries, Nigeria and Kenya. Semi-structured interviews were conducted and analysis of the interviews revealed that these countries, although understand the different benefits that FDI is expected to offer a host country, their limited policy capacity (influenced by the factors identified earlier) restrict them to specific FDI benefit priorities. More importantly, these countries are constrained, by tight competition between them for the limited supply of FDI, to put strict policies that control rogue behaviour by foreign firms and facilitate the attainment of significant sustainable development contribution of FDI to their host economies.

In exploring the process that local firms go through to identify “relevant” horizontal knowledge spillovers, and how they capture these spillovers, in-depth semi-structured interviews were conducted with Kenyan local firms. Analysis of the interviews revealed that the awareness of pull triggers and push innovations help local firms to identify relevant spillovers from foreign investors. Capturing these spillovers is made easy with acknowledged competitive pressure and the productivity-seeking behaviour of the local firms. Still, there are challenges faced by these local firms in capturing and internalising identified relevant spillovers. This leaves room for the host governments in terms of providing support aimed at capturing these spillovers and thereby maximising the contribution of FDI to the sustainable development of their economies.

Lastly, a crisp-set qualitative comparative analysis method was adopted to evaluate the effectiveness of the policies adopted in selected African countries. Three policy conditions were used to evaluate the effectiveness of a policy. The cQCA shows different policy effectiveness conditions for the different African countries’ policies evaluated. But, in all cases, the consistency of policy means is the most critical for facilitating effectiveness of the policies adopted.

Contributions and Limitation

Several contributions were made in the thesis including;

1. Methodologically by proposing and adopting an augmented review protocol involving two protocols, PRISMA and SPAR-4-SLR, to benefit from the core advantages of both protocols, and strengthen the transparency, replicability, and reliability of the review process.
2. Theoretically by developing and adopting a conceptual policy capacity framework to strengthen practical policy research in IB and provide a contextual understanding of sustainable development contribution of FDI for practical use.
3. Empirically by advancing existing understanding of horizontal knowledge spillovers, integration of an interdisciplinary approach to international business policy research, and contextual exploration of sustainable development and FDI for practical use.

Some of the major limitations identified include limited data access to policy makers in many African countries, and, little (to no) empirical research and fragmented debates on sustainable development contribution of FDI in the context of developing countries, despite the relevance of this topic to the sustainable development of many developing countries. More empirical studies, not merely recommendations, need to be carried out on this research phenomenon. More importantly, the conceptual frameworks developed in this thesis need to be explored in the context of other developing countries.

While internationalisation is frequently viewed by large enterprises in developed countries as a means of exploiting their ownership advantages (Ahsan et al., 2020), it is perceived as a critical channel for small firms in emerging markets to acquire resources and knowledge (Mathews, 2006; Guillen and Garcia-Canal, 2009; Tiwari et al., 2016; Gammeltoft and Cuervo-Cazurra, 2021), thereby enhancing their innovation performance. Despite the fact that many emerging countries are now identifying effective approaches to encourage the innovative performance of smaller firms through internationalisation, most studies have focused only on the outward activities of large firms in developed countries. Therefore, the aim of this thesis is to investigate the influence of internationalisation on the innovation performance from the perspective of emerging market smaller firms. It focuses on identifying what specific international activities that contribute to improving the innovation performance of smaller firms in emerging markets, as well as the mechanism that underpins this relationship.

Unlike developed-market multinational corporations (MNCs), emerging-market smaller firms cannot invest a great amount of money in R&D or rely on their national innovation system to improve their innovation because of their limited resources and weak domestic markets. Instead, they must try to utilise international knowledge sources to compensate for home deficiencies. Therefore, according to institutional theories (Capello, 1999, Welter & Smallbone, 2014), the innovative behaviour of small firms in emerging countries needs to be examined in the context in which it occurs. Moreover, compared to MNCs in developed markets, emerging market smaller firms have a very low absorptive capacity, which may limit their potential to acquire new knowledge from international activities and translate it into innovations (Lori and Atul, 2001; Harris et al., 2021). Consequently, it is essential to examine the latter process in the context of smaller firms in emerging markets.

Research methods: The thesis first conducts a cross-country study that focuses on Asian emerging markets, the largest in the world, to identify the specific international activities that promote the innovation performance of manufacturing SMEs. It then concentrates on Vietnam, one of Asia’s fastest-growing economies (Romei and Reed, 2019) but one of the countries with low absorptive capacity in the region (Hien, 2010). A longitudinal study is performed to determine what specific international activities improve the innovation performance of manufacturing SMEs, given the low absorptive capacity of Vietnamese firms. Finally, the thesis explores how international activities could improve the innovation performance of firms by unpacking the entrepreneurial absorptive capacity learning process of Vietnamese tech start-ups. Tech start-ups are the most dynamic organisations in the economy, are generally internationally oriented, and innovation is the most important factor in their success (Ries, 2011; Kohler, 2016).

Methodological contribution: This research contributes methodologically to the literature on exports and innovation by being, to the best of the author's knowledge, the first to overcome the problem of self-selection bias (international companies might already have greater innovative capabilities before they enter overseas markets (Rehman, 2017)). Unlike previous studies that failed to demonstrate the credibility of using a lagged explanatory variable to deal with endogeneity caused by the self-selection effect (e.g., Ayllón and Radicic, 2019; Salomon and Shaver, 2005), this research overcame this problem by following the guidelines proposed by Bellemare et al. (2017). As a result, the research’s theoretical contributions are more reliable.

Theoretical contribution 1: Inward activities enhancing innovation performance of emerging market smaller firms

Specifically, imports appear to be the most important inward activity for the innovation performance of SMEs in emerging markets. In addition to demonstrating the beneficial effects of imports on technological innovations, this research also reports their impact on non-technological innovations, which has not been addressed in previous research. Non-technological breakthroughs have been found to be critical for firm success (Pino et al., 2016; Achmad, 2017), shaping the firm’s core values (D'Ippolito and Timpano, 2016), and contributing to a firm's innovation capacity (Mothe and Nguyen, 2010).

Following imports, foreign technology licensing is the next critical inward activity. While past research has concentrated primarily on the impact of foreign technology licensing on technological innovations (which are often measured by patent counts), this research shows that foreign technology licensing also encourages non-technological innovations of SMEs in Asian emerging economies. However, the findings demonstrate that while foreign technology acquisition has a substantial impact on emerging market SMEs’ ability to dramatically improve domestic manufacturing processes, it may have a lesser impact on new product innovations, which is distinct from prior research focusing on developed countries. This can be explained by the fact that these countries emphasise labour-intensive, low-technology manufacturing during early phases of industrialisation, with their production consisting primarily of the assembly of overseas inputs to create standard, undifferentiated products (Kim, 1980; Seric and Tong, 2019).

Finally, this research provides, to the best of the author's knowledge, the first evidence of a positive relationship between outsourcees and product innovations while prior studies only focused on outsourcing companies. While strategic outsourcing can help MNCs cut costs and focus more on core competencies (Belcourt, 2006; Dante Di et al., 2009; Edvardsson et al., 2019), acting as suppliers to foreign customers allows emerging market SMEs to learn from their international partners, strengthen their capability, and position themselves for future outward international activities like exports or FDI.

Theoretical contribution 2: The critical role of absorptive capacity in the internationalisation-innovation performance relationship

This research demonstrates the critical role of absorptive capacity in the relationship between internationalisation and innovation performance of emerging market smaller firms. Unlike MNCs in developed markets, emerging market smaller firms must strive to increase their absorptive capacity (e.g., through investment in R&D) to the point where they can acquire new knowledge from international activities, fully comprehend it, integrate it into their own activities, and commercialise it. Indeed, the thesis provides evidence to indicate that emerging market SMEs must first strengthen their absorptive capacity before leveraging exports to improve product and marketing innovations. Furthermore, foreign technology in-licensing must be integrated with in-house R&D efforts (to strengthen firms’ absorptive capacity) before emerging market SMEs can enhance their product innovations. Finally, when absorptive capacity is limited (as is the case for Vietnamese manufacturing SMEs), companies must first improve their absorptive capacity before leveraging imports to promote product innovations.

Theoretical contribution 3: Conceptual model depicting how international activities can enhance innovation performance

This thesis presents a significant advance over existing literature on the relationship between internationalisation and innovation by being, to the best of the author's knowledge, the first to develop a conceptual model that depicts the learning processes of absorptive capacity, showing how firms obtain new knowledge from internationalisation and translate it into innovations. The model also reveals several contingent human factors that influence the effective transformation of international activities into innovation value and performance: trust-based relationship, particularly with partners from inward activities (which explains why inward activities are more beneficial), prior international business and start-up experience, culture for innovation, leading through enthusiasm and vision (transformational style), and reward and recognition mechanisms.

Practical implications: Policymakers in Asian emerging markets need to support SMEs’ inward internationalisation in order to boost their innovation performance. More precisely, the imports of production inputs tend to be the most viable of the four activities investigated as they affect all four types of innovations. From a managerial viewpoint, one important implication from the findings is that firms should never stop improving their absorptive capacity during their internationalisation. Furthermore, the development of the conceptual model in this thesis serves as a guideline for tech start-ups on how to facilitate the learning process to enhance the impact of internationalisation on firm innovation performance.