Innovation is an important factor in the modern business world. Innovations push businesses forward, and every business should adopt some innovative practices to stay in the competition. International business is not an exception. Moreover, both international corporations and national companies that are involved in international trade are affected by innovation as a factor in markets and development. Innovation may involve new technological solutions (e.g., inventions) or new managerial practices (e.g., new business models). The importance of innovation for international business will be assessed from three perspectives: cooperation, competition, and development.
First of all, innovation is important for international business because innovation requires cooperation, and international businesses that work on innovation are brought closer together. Hovhannisyan and Keller (2015) found that international business traveling is capable of promoting innovative technologies and business practices in developing markets if entrepreneurs from developed markets travel to developing markets. It is important that despite the availability of modern communication technologies, such as video chat and instant messaging services, many businesspersons today still prefer to negotiate face-to-face. This practice of traveling to other countries personally for collaboration is an important component of innovative projects in technology transfer that promote international trade. Upon discovering that business air travel increases innovation, Hovhannisyan and Keller (2015) suggest that making air travel cheaper for entrepreneurs can contribute to different countries’ economic growth.
In the context of cooperation, it should be noted that innovation often deals with advanced technology or complicated systems for which the resources of just one country’s market may be insufficient. As businesses recognize that more extensive cooperation is needed to succeed in innovative projects, they are more encouraged to work across borders. Further, as their business connections are established in innovative projects, those businesses are likely to extend their cooperation and engage in continued international trade. However, businesses do not have to work on innovations alone. There are research institutions and specialized science- and technology-related organizations that may not be affiliated with a particular business but serve the needs of different international businesses. Kang and Park (2012) found that, in promoting innovation through funding research institutions, international business connections were stronger than domestic business connections. It shows that international business is a good environment for innovations, but also working on innovations is a good environment for promoting international business cooperation. Furthermore, international linkages also stimulated business growth and cooperation via access to various resources, such as information, financial and human resources, and technologies.
Another aspect of the internationalization of small and medium enterprises in network relationships. Network relationships usually include customers, suppliers, competitors, and government and educational institutions (Chetty & Stangl, 2010). In general, network relationships are dyadic relationships between two actors and parties that might or might not involve other parties. Together with network relationships, important roles are also played by internationalization and innovation. Depending on the firm’s attitude toward these three aspects of business, the firms can be divided into four groups:
- Firms that can rapidly internationalize because their radical innovation supports network relationships that hasten their internationalization.
- Firms that prefer to develop innovation before internationalization are highly committed to their markets (normally, Anglo-Saxon clusters).
- Firms that can internationalize quickly and capitalize on innovation.
- Firms that are small and at their earliest stages of internationalization. They do not have many network relationships and heavily rely on social ties.
As can be seen, different types of network relationships are directly connected to the firm’s ability to internationalize; they also determine the type of this internationalization and firm’s attitude toward innovation and its development and exploitation. Social networks should also be taken into consideration as determinants of innovation, for example, when the firm’s main suppliers are multinational corporations. Innovation itself can be either radical or incremental, and its type directly influences the degree of change at a firm and the transformation of existing practices.
Finally, it should be mentioned that innovation is important not only for developing international connections among businesses in different countries but also for developing the networks of existing international businesses. Innovation does not only apply to technological advancements; managerial practices and business models can also be innovative. Today’s international businesses are large and complicated structures that involve production, management, leadership, communication, and many other areas of activities. Such businesses are constantly looking for ways to improve their operation and to make it more efficient. For this, they resort to innovative practices. According to Schneider and Spieth (2013), innovative business models attract the interest of international businesses, and three areas should be explored in further research. First, there is a need to explain what enables businesses to conduct business model innovation. Second, it is needed to understand more profoundly the process of business model innovation. Third, the consequences of business model innovation need to be examined. However, what is evident already is that business models are “an important means to commercialise innovations” (Schneider & Spieth, 2013, p. 1). Therefore, innovation is important for international business in terms of improving organizations’ performance.
Also, innovation is important for promoting and improving competition in international business. Competition is a crucial factor in business development. It has been recognized in recent decades that a successful strategy for a business is to gain a unique competitive advantage instead of pursuing relative advantages. This strategy is called the blue ocean strategy (Pitta & Pitta, 2012). Red oceans are portions of the market in which competition is tight. The industry participants should constantly look for opportunities to gain relative advantages that will bring them ahead of their competitors for a while. In this situation, a business’s competitor is its benchmark. It is important to understand that this racing of competition is due to the nature of the demand: organizations in red oceans compete for essentially the same demand, which they can address more or less successfully.
However, when a business discovers an uncontested demand, it creates a “leap in value” (Pitta & Pitta, 2012, p. 37), and the business rapidly grows because competition becomes irrelevant. It is called entering a blue ocean. The blue ocean strategy may not apply to all industries and portions of the market. Still, it is beneficial for businesses to consider breaking the existing cycle of advancement and competition and offering something to customers that no one else offers. From this perspective, it may not necessarily be about discovering an uncontested demand, but it also may be about creating new demand. Instead of monitoring and analyzing what potential customers say they want, blue ocean businesses offer something that the customers want. Those businesses will have the privileged position of being out of competition in offering this something.
Further, the role of competition in this process can be assessed. Competition is the environment in which businesses operate and an important factor to be always considered when making any business decisions. However, to compete successfully, a business should identify the competitors correctly. For example, if a company produces chocolate treats, its competitors are not only producers of chocolate treats because not all the customers who buy them look for chocolate treats exactly. Instead, those customers may be interested in buying a sweet snack, and the producers of whatever lies next to the chocolate treats on a shelf are the company’s competitors, too. This vision refers to defining a company’s scope of operation.
Another major example is the history of Netflix (Adhikari et al., 2012). The company started selling DVDs by mail. Instead of staying a DVD seller, it defined itself as an entertainment company, and further shifted to streaming, as the technology was developing. For two decades, the company has been serving its customers because, instead of competing with other DVD sellers, it realized that what the customers wanted was to watch movies and series. The company addressed this need with the most advanced tools available.
It shows that innovations, such as technological advancements that introduce new products and services, take the competition to new levels. Innovations enable businesses to leave the sectors of tight competition and enter new areas where demand is uncontested, and opportunities are abundant. Also, international businesses involved in developing innovations occupy a special position in their competition.
Finally, innovation is important for international business because it promotes the development of international organizations and overall international business practices. It has already been shown that innovation facilitates cooperation among international businesses and among national businesses that operate internationally. Also, it has been shown that innovation takes competition among businesses to new levels. However, the contribution of innovation to international business development is not limited to these two influences. According to Frankenberger, Weiblen, Csik, and Gassmann (2013), business model innovation can help companies achieve “superior performance” (p. 249). However, the authors stress that to understand how this works, the process of innovation should be specifically studied.
A good example of the interconnection between international businesses is the transformation in the television content distribution, as discussed by Steemers (2014). The author points out that the distribution of such content has changed significantly during the last years. Instead of linear scheduled television audiovisual environment becomes on-demand and engagement-based.
The massive change in the distribution of commercial television occurred in the 1990s, with the emergence of various TV channels worldwide. Both US and UK players began to export various television content, and US series (mostly drama) were more popular among consumers than the UK were. However, with the emergence of digital and on-demand services that provided consumers with a new format of distribution, the international market began to change. New players, such as Netflix, Amazon, and Google, speed up the industry changes, and not only in North America or Europe but also in Asia, Africa, Latin America, etc. The government also addresses the changes by adopting policies that regulate the distribution and selling of the national television content, thus restricting the availability of on-demand services to a specific group of viewers.
International producers have to be involved in various aspects of their business that include protection from privacy, licensing, brand marketing in the global market, and across various platforms, and intellectual property (Steemers, 2014). Even the newest on-demand platforms are still focused on their primary market (either US or UK). They tend to overview other potential markets due to geographic and, possibly, cultural differences. Still, the development of television services available for different markets is more than likely due to the expansion of such platforms to different countries.
As can be seen, the importance of international markets to producers and the development of platforms oriented on consumers from various countries are capable of transforming industries, leading to more tight connections and mutual influence of international players.
In conclusion, innovation can promote cooperation among businesses that operate internationally, modify and improve the conditions of competition, and help businesses develop. Cooperation is promoted through encouraging businesses to work together because innovations require combined efforts. It can be stimulated by various tools, including network relationships, which are usually defined by the firm’s approach toward innovation and internationalization. Competition is improved because innovation takes it to new levels by discovering uncontested demand or creating new demand. Also, innovations can provide businesses with competitive advantages. Finally, innovation facilitates development because businesses gain better tools for controlling and improving their operation. Therefore, international businesses should be willing to engage in innovations.
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Chetty, S. K., & Stangl, L. M. (2010). Internationalization and innovation in a network relationship context. European Journal of Marketing, 44(11/12), 1725-1743.
Frankenberger, K., Weiblen, T., Csik, M., & Gassmann, O. (2013). The 4I-framework of business model innovation: A structured view on process phases and challenges. International Journal of Product Development, 18(3), 249-273.
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Kang, K. N., & Park, H. (2012). Influence of government R&D support and inter-firm collaborations on innovation in Korean biotechnology smes. Technovation, 32(1), 68-78.
Pitta, D., & Pitta, E. (2012). Transforming the nature and scope of new product development. Journal of Product & Brand Management, 21(1), 35-46.
Schneider, S., & Spieth, P. (2013). Business model innovation: Towards an integrated future research agenda. International Journal of Innovation Management, 17(01), 1-34.
Steemers, J. (2014). Selling television: Addressing transformations in the international distribution of television content. Media Industries Journal, 1(1), 44-47.