The State-SME nexus: an innovation-focused analysis and international scaling
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Date
2025-06-30
Authors
Sima, Yueling
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University College Cork
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Abstract
Small and medium-sized enterprises (SMEs) are increasingly pursuing international scaling, yet they face formidable resource constraints and barriers to cross-border expansion. This dissertation addresses the critical State-SME nexus, exploring how institutional support systems can effectively empower SMEs to innovate and thrive in international markets. Moving beyond a general assessment of support, this research specifically investigates and compares how distinct initiatives, namely financial funding (government subsidies) and collaborative knowledge-sharing (with public knowledge sources including research institutes and universities), influence SME innovation pathways and subsequent international performance. Grounded in the context of Ireland, a small, open, and innovation-driven economy where SMEs are vital economic contributors, this study provides empirically backed insights into the tailored effectiveness of these support mechanisms, addressing a significant gap in international business literature concerning the nuanced interplay between state support, different types of innovation, and SME internationalization dynamics.
This dissertation develops an integrated framework that bridges macro-level perspectives from National Business and Innovation Systems with micro-level dynamics of the Knowledge-Based View and the Uppsala model of internationalization. It particularly examines meso-level coordination within innovation ecosystems and demonstrates how institutional support can enhance SME knowledge development and facilitate international scaling. Adopting a multi-paper approach, the research combines a systematic literature review with rigorous empirical analyses. These analyses utilize unique and comprehensive panel datasets from the Irish Central Statistics Office, covering the period 2006-2019, which provide detailed firm-level information on innovation activities, international performance, and engagement with state support. Propensity Score Matching is employed in the empirical chapters to mitigate selection bias and isolate the causal impact of government subsidies and innovation collaboration. The longitudinal nature of the data allows for an examination of dynamic and evolving relationships over time. A multi-dimensional international performance measure is developed, encompassing export decisions, market diversification, product diversification, and export value. This approach captures key facets of international scaling—from initial market entry and expansion across diverse markets and products to overall export growth—aligning with contemporary international business literature on how firms achieve persistent cross-border expansion.
The analysis also explicitly differentiates between radical and incremental innovation, revealing distinct impacts for different support types. General government subsidies, even without explicit R&D mandates, positively influence SME R&D investment, which in turn promotes export decisions. However, the impact of this policy-induced R&D on subsequent export market diversification is less pronounced than the effect of privately funded R&D. In contrast, collaboration with public knowledge sources [NM2.1][YS2.2]significantly enhances both incremental and radical innovation within SMEs. Incremental innovation is found to drive export decisions primarily when SMEs engage in this institutional collaboration, whereas radical innovation independently fuels export activity. Notably, institutional collaboration demonstrates a stronger positive impact on export market diversification than a firm’s independent innovation efforts, for both incremental and radical innovation outputs. These results underscore the importance of tailored support mechanisms, aligning with the specific innovation types being fostered and the internationalization objectives of SMEs.
The overarching theoretical contribution of this dissertation is a significantly more nuanced, integrated, and empirically grounded understanding of the role of state agencies and public knowledge sources in facilitating SME internationalization through innovation. This is achieved by: (1) refining the conceptualization of state agencies as distinct institutional and organizational actors; (2) integrating micro and macro perspectives to bridge firm-level strategies with national-level systems; (3) highlighting the contingent nature of institutional support, where effectiveness depends on the type of support, the type of innovation pursued and the stage of internationalization; and (4) refining existing internationalization models by incorporating the impact of institutional support and post-entry expansion dynamics, aligning with contemporary perspectives on international scaling.
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Keywords
Small and medium enterprises , Innovation , Institutional collaboration , Government subsidies , International scaling
Citation
Sima, Y. 2025. The State-SME nexus: an innovation-focused analysis and international scaling. PhD Thesis, University College Cork.