The impact of engaging in international activities on the innovation performance: The case of Vietnamese SMEs

If emerging markets once relied on foreign direct investment by MNCs to exchange low labour cost for technology spillover, the recent trends have proved their self-reliant growth strategy based on internally developed innovation capability and entrepreneurship. Enhancing self-developed innovation through internationalisation helps emerging market SMEs stay in control and achieve sustainable development in the ever uncertain world economy. However, little is known what the impact of internationalisation on SME’s innovation in emerging markets in the context of limited available resources and weak institutional environment. Employing the panel data of 2500 Vietnamese manufacturing SMEs from 2009 to 2015, this study investigates the influence of exports, imports and outsourcing on innovation performance of emerging market SMEs. The paper makes a methodological contribution by being likely the first to overcome the problem of self-selection bias (a particular limitation of cross-sectional studies when examing the impact of internationalisation on innovation since international companies might already possess higher innovative capabilities before they enter overseas market), when confirming that prior export intensity has positive impact on product and process innovation. The findings also suggest that import of production inputs is crucial for emerging-market SMEs to improve their innovation performance.