Knowledge, location, and internationalization: empirical evidence for manufacturing SMEs

Abstract

This paper investigates the links between locational conditions, innovative capabilities, and internationalization of manufacturing small and medium-sized enterprises (SMEs). Two modes of foreign market servicing are explored: exporting activity and relocating of selected business activities abroad. The analysis is based on the survey of about 3000 firms. The results reveal that the outputs of SMEs' innovative activities – product innovations and patent applications – enhance exporting propensity. Nevertheless, the input-side indicator – R&D intensity – appears to exert no impact. Furthermore, the locational factor proximity to research institutions promotes SMEs' exporting. Regarding the determinants of selective relocations abroad, the findings show that SMEs with a high degree of R&D are less likely to separate production from other operations and relocate it abroad. Moreover, manufacturing SMEs assessing the proximity to research facilities, as well as support from various regional authorities as important and good-quality locational conditions, exhibit a significantly lower likelihood to relocate selected activities abroad.

Keywords:

• internationalization
• locational factors
• manufacturing
• SMEs

JEL Classification:

• M16
• M20
• L25
• O30
• R30

Acknowledgements

The author thanks Alexander Eickelpasch and Heike Belitz for their helpful discussions and suggestions. Furthermore, I gratefully acknowledge the suggestions and comments by the anonymous referees. The usual disclaimer applies.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. Replicative relocation implies the move of all firm operations and activities from its source location to a foreign destination location (Biggiero 2006, Sammarra 2005). Firms implementing the strategy of replicative relocation tend to be clearly oriented to and/or favoured of the localization advantages from the destination location. Hence, it appears to be somehow pointless to inquire the effects of the attractiveness of the source location on adopting the replicative relocation strategy by firms. As a result, this paper takes only selective relocations abroad into consideration.

2. As it is possible that firms employ both foreign strategies at the same time, one could suggest that a bivariate probit model might be a more appropriate approach for the empirical analysis in this paper. This approach allows for two binary choice equations with correlated disturbances (Greene 2003). However, since the estimation results from the binary probit model reveal that the correlation coefficient between the error terms of the two estimation equations turns out to be insignificant, two univariate probit models are more appropriate for this study.

3. The Phi correlation coefficient between those dichotomous variables amounts to about 0.89.

4. For the exporting and nonexporting firms, the share of employees with a university degree amounts on average to 18.5% and 11.4%, respectively. The difference of these mean values is significant at the 1% level (the corresponding t-value is −8.65).