Disentangling the relationship between internationalization, incremental and radical innovation, and firm performance

Research Summary This study examines the impact of firm internationalization on incremental and radical product innovation, and the effects of these innovation facets on sales growth. We use a sample of 1,064 Spanish manufacturers over the period 2008-2014. We find a positive relationship between higher international scope and greater ex-post radical innovation output, and an inverted U-shape relationship between export intensity and both innovation forms. We also find a positive relationship between incremental innovation and sales growth for performance leaders, and negative for performance laggards. Conversely, radical innovation boosts performance laggards' sales growth, but reduces that of performance leaders. The study supports and qualifies the learning-by-exporting effect, by identifying some firm-specific factors that shape the relationship between internationalization, innovation, and firm performance. Managerial Summary In this study, we examine the effect of a more intense and more geographically spread out international expansion in a firm's incremental and radical innovation performance. We argue that more internationalized firms may benefit from new knowledge and learning, which they may leverage to increase their incremental and radical product innovations. In turn, we posit that incremental product innovation may be beneficial for performance leaders, but useless for a turnaround of performance laggards. Conversely, radical innovation may be useful for performance laggards, but may disrupt the current position of performance leaders and lead to reduced sales growth. These results point to the importance for exporters to use their new knowledge and capabilities to develop innovation forms that are consistent with their position in the market.