The impact of opportunity connectedness on innovation in SMEs' foreign-market relationships

Small and medium-sized enterprises (SMEs) use of business networks has grown significantly during the last decades, partly due to increasingly complex innovation processes. This article investigates how different kinds of networks, depending on location, contextualize innovation in specific foreign market business relationships. Building on internationalization, network, and innovation research we develop a model that views opportunity connectedness in specific host-markets, home-markets, and other international markets as prerequisites to innovative collaboration and innovation outcomes in foreign business relationships. The results of our linear structural relations (LISREL) analysis of Swedish SMEs provide empirical evidence that the effect of opportunity connectedness on innovation outcomes in foreign business relationships is mediated by the level of innovative collaboration. These results indicate that SMEs need a relatively higher level of innovative collaboration in their partnerships with foreign market customers to convert opportunities conceived in home- and international- market networks into innovative outcomes in comparison to opportunities conceived in host-market networks. This finding implies that as opportunities become increasingly contextually remote, the importance of collaborative business relationships increases. By showing these results, the study contributes to research in the international small-business domain that seeks to identify important prerequisites of SME innovation.