The impact of institutional impediments and information and knowledge exchange on SMEs’ investments in international business relationships

This paper investigates the impact of institutional impediments and of knowledge and information exchange in international business relationships on small and medium-sized enterprises (SMEs) specific investments in international business relationships and the outcome of such investments on the performance of SMEs. Using a sample of 255 internationalising SMEs, we develop and test three hypotheses with the linear structural relations (LISREL) model. The analysis shows that institutional impediments and the exchange of knowledge and information in business relationships lead to increased relationship specific investments (RSIs). Furthermore, such investment results in increased performance for the internationalising SME. Research commonly uses micro or macro properties of institutions to explain how institutional differences affect international business; however, limited research has been devoted to investigate how institutional differences, experienced through interaction in business relationships, affect the business relationship. This paper helps to close this gap by showing the effects of institutional differences on a relational level.