Innovation through internationalization: A systematic review and research agenda

Abstract

In this paper we perform a systematic literature review of the diverse and somewhat fragmented current state of research on firms’ internationalization and innovation. We analyze 207 key works from 1989 through 2020 and synthesize them into an internationalization process framework that conceptually maps key internationalization-related antecedents and moderators that influence innovation behaviors and outcomes. Through an internationalization process framework, we categorize existing relevant studies into three key stages: (a) the pre-internationalization stage, (b) the internationalization entry stage, and (c) the post-internationalization stage. Furthermore, we review how firms’ various strategic decisions and operations in different stages influence their innovations by elaborating the moderating role of external country/region institutions and firm internal characteristics. Building on this review, we provide suggestions for future research to advance the developments of this domain.

Full text

Vol.:(0123456789)
Asia Pacific Journal of Management (2023) 40:1217–1251
https://doi.org/10.1007/s10490-022-09814-z
1 3
Innovation throughinternationalization: Asystematic
review andresearch agenda
JianDu1· ShanZhu2· WenHelenaLi3
Accepted: 8 March 2022 / Published online: 28 March 2022
© The Author(s) 2022
Abstract
In this paper we perform a systematic literature review of the diverse and somewhat
fragmented current state of research on firms’ internationalization and innovation.
We analyze 207 key works from 1989 through 2020 and synthesize them into an
internationalization process framework that conceptually maps key internationali-
zation-related antecedents and moderators that influence innovation behaviors and
outcomes. Through an internationalization process framework, we categorize exist-
ing relevant studies into three key stages: (a) the pre-internationalization stage, (b)
the internationalization entry stage, and (c) the post-internationalization stage. Fur-
thermore, we review how firms’ various strategic decisions and operations in differ-
ent stages influence their innovations by elaborating the moderating role of external
country/region institutions and firm internal characteristics. Building on this review,
we provide suggestions for future research to advance the developments of this
domain.
Keywords Internationalization· Innovation· Systematic literature review
Jian Du, Shan Zhu, and Wen Helena Li All authors contributed equally to the work.
* Wen Helena Li
Helena.Li@uts.edu.au
Jian Du
dujian@zju.edu.cn
Shan Zhu
zhushan@zju.edu.cn
1 School ofManagement, School ofManagement Building, Zhejiang University, Room 818,
Hangzhou310058, Zhejiang, China
2 School ofManagement, Zhejiang University, Room 811-14, School of Management Building,
Hangzhou310058, Zhejiang, China
3 UTS Business School, University ofTechnology Sydney, Sydney, NSW, Australia
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Abbreviations
EMNE Emerging Multinational Enterprise
HBA Home-base-augmenting
HBE Home-base-exploiting
IPR Intellectual Property Right
IB International Business
INV International New Venture
JV Joint Venture
MNE Multinational Enterprise
OFDI Outward Foreign Direct Investment
R&D Research and Development
SME Small/Medium-sized Enterprise
TMT Top Management Team
WOS Wholly Owned Subsidiary
Innovation is of great importance for firms’ long-term sustainability and global
competitiveness (Kafouros etal., 2008). It is impossible to innovate in a sustainable
manner within a firm’s home country only, given that each country has its own limi-
tations and constraints (Anand etal., 2021). Since the early 1980s, leveraging multi-
ple innovation resources inside and outside of firms’ home countries has become an
essential source for firms to develop innovation capabilities, and a growing number
of firms have documented the role of internationalization in their innovation perfor-
mance (Papanastassiou etal., 2020; Zhao etal., 2021). Also, to better understand the
strategic decisions and outcomes behind whether and how firms augment their inno-
vation capabilities through the internationalization process, scholars have produced
a vast amount of work (e.g., Ananthram & Chan, 2021; Hitt etal., 1997; Kafouros
etal., 2008; Phene & Almeida, 2008; Xie & Li, 2018; Zahra etal., 2000).
In this paper, we aim to review the literature on the role of internationalization
in firms’ innovation, covering publications from 1989 to 2020, for several pur-
poses. First, despite a sustained and growing interest by the international business
(IB) community in linking firms’ internationalization with innovation, we find
this domain highly fragmented, with scattered findings and diversified theoretical
perspectives; a systematic review is absent thus far. Only recently, Christofi etal.
(2019) and Papanastassiou etal. (2020) have attempted to address this gap. How-
ever, the former focused exclusively on the impact of micro level factors on tech-
nological innovation in the context of cross-border acquisitions, whereas the latter
shed considerable light on multinational enterprises’ (MNEs) global research and
development (R&D) over the past 50years through historically changing perspec-
tives. Thus, a more systematic review covering firms’ various internationalization
strategies and diverse innovation activities is needed.
Second, inconsistent findings persist regarding the relationship between inter-
nationalization and innovation. For instance, there are mixed results on whether
firms’ diversity of international locations leads to positive innovation outcomes such
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as new products (Wu & Park, 2017; Zahra etal., 2000) and whether cross-border
acquisition triggers subsidiaries’ innovation behavior such as R&D investments
(Bertrand, 2009; Hitt etal., 1991). Moreover, scholars also debate whether subsid-
iaries’ autonomy can improve innovation outcomes within MNEs (Beugelsdijk &
Jindra, 2018; Mudambi etal., 2007). These disagreements call for synthesizing and
analyzing the literature to identify consensus and controversies.
Third, global contexts are now undergoing unprecedented political, economic,
and social turbulence from various sources, including the “global war” on intellec-
tual property, the rapid development of the digital economy, the COVID-19 pan-
demic, and trade tensions and protectionism. These pose significant challenges to
firms’ processes of building innovation capability (Bahl etal., 2021; Petricevic &
Teece, 2019; Sun etal., 2021; Yan etal., 2021), which may call into question prior
research findings and serve as an opportunity to revise our existing theories and
findings. Without a systematic review of our current knowledge, it is hard for schol-
ars to determine what needs to be revised in rapidly changing environments.
To address the aforementioned gaps, we have integrated current knowledge by
surveying the literature on the impact of firms’ internationalization on their innova-
tion. Using systematic literature review (SLR) methodology, we reviewed and coded
207 papers published in a wide range of IB, innovation, and management journals
from 1989 to 2020. Through an internationalization process framework, we catego-
rized existing relevant studies into three key stages: (a) the pre-internationalization
stage, (b) the internationalization entry stage, and (c) the post-internationalization
stage. We further conducted a systematic analysis on whether and how firms’ inter-
nationalization influences their innovation behaviors (e.g., R&D investment, R&D
alliance formation, and R&D site selection) and innovation outcomes (e.g., patent,
product and process). Then we elaborated the contingent role of external country/
region institutions and firms’ internal characteristics in this relationship. Further-
more, we identified several research gaps and provided a set of suggestions for future
research to advance the developments in this domain.
Methodology
In this study, we followed the multistep review approach of Denyer and Tranfield
(2009) to conduct our SLR of published works on whether and how firms’ inter-
nationalization influences their innovation. This methodology provides a rigorous
and replicable way to identify, screen, select, and analyze existing literature, and it
ensures robustness by eliminating subjectivity in data collection and analysis. Spe-
cifically, this approach involves four steps: (a) defining the review questions, (b)
establishing the scope and boundary of the review, (c) screening and selecting pro-
cess, and (d) analyzing and synthesizing. Figure1 summarizes our four-step iterative
process.
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Defining thereview question
The ways firms’ internationalization affects their innovation have drawn much atten-
tion and produced extensive studies.In our paper, we have tried to build a compre-
hensive framework that can provide insights and extend our understanding of the
essence of this domain and its underlying mechanisms.Thus, our SLR is driven by
the following two research questions: What is the current state of research on the
relationship between internationalization and innovation? What implications for
future research do our findings suggest?
Fig. 1 Summary of the systematic review methodology
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Establishing thescope andboundary ofthereview
We have determined the exclusion and inclusion criteria for our review to estab-
lish its scope and boundaries.First, we set our time frame from 1989 to 2020. We
chose 1989 as our starting year because, since the 1980s, leveraging knowledge and
resources outside of firms’ home countries has been thought to an important source
for developing innovation capabilities (Papanastassiou etal., 2020).
Second, we defined the conceptual boundaries for two key terms: internationali-
zation and innovation. “Internationalization” is a process by which firms gradually
increase their international involvement and is the product of a series of incremental
decisions (Johanson & Vahlne, 1977). Firms’ internationalization process has been
conceptualized as a set of key decisions, including location, entry mode, invest-
ment amount, and control and management of the foreign operation (Beugelsdijk
etal., 2017). As defined in the European Commission’s Green Paper of Innovation
(Europeu, 1995), “innovation” is production or adoption, assimilation, and exploita-
tion of a value-added novelty in economic and social spheres;renewal and enlarge-
ment of products, services, and markets; development of new methods of produc-
tion; and establishment of new management systems (pp. 1–2). For our review,
we adopted the commonly used classifications for firm-level innovations: innova-
tion behavior and innovation outcome (Adams etal., 2006). Innovation behavior is
defined and measured as a firm’s strategic activities and decisions dedicated to the
exploration and exploitation of new opportunities, such as R&D investment, R&D
site selection, and R&D alliance formation (Duran etal., 2016). Newly or signifi-
cantly improved patents, products, and processes are the most studied forms of
innovation outcomes (Hagedoorn & Cloodt, 2003). Our paper highlights the differ-
ences between these two dependent variables used in the literature to more com-
prehensively summarize this domain. Under the conceptual boundaries, we ini-
tially clarified two keywords: “Internation*” and “Innovat*.” Then, we referred to
the frequently cited reviews in the fields of internationalization and innovation and
consulted relevant scholars to supplement the pool of keywords (Beugelsdijk etal.,
2017; Duran etal., 2016; Hagedoorn & Cloodt, 2003). In terms of internationaliza-
tion, we added keywords such as “global,” “foreign,” and “cross-border,” and for
innovation, we added “R&D,” “technology,” “knowledge,” and “learning”.1
1 We formed two sets of keywords: the first having descriptive terms relating to internationaliza-
tion andthe second relating to innovation. When we run a topic-specific search in Web of Science, we
combinethe two sets to ensure that each keyword from one set was pairwise searched together with a
keywordfrom the other. The first set includes internation* OR global* OR foreign* OR oversea* OR
multination*OR “cross-border” OR “crossborder” OR “cross border” OR “geographic diversi*” OR
“countrydiversi*”, and the second includes innovat* OR “R&D” OR “research and development” OR
“knowledgetransfer” OR “knowledge sourcing” OR “knowledge search” OR “knowledge flow” OR
“knowledgemobility” OR “knowledge spillover” OR “knowledge creation” OR “knowledge acquisition”
OR “knowledgenetwork” OR “knowledge absorption” OR “knowledge capacity” OR “technology spillo-
ver” OR“technology transfer” OR “technological upgrading” OR “technology sourcing” OR “technol-
ogy flow”OR “technological acquisition” OR “technological alliance” OR “technological capacity” OR
“technologicallearning” OR “joint learning” OR “learning network” OR “organizational learning.”
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Third, we considered peer-reviewed articles only, excluding book reviews, maga-
zines, editorials, and interviews to ensure the highest quality and scholarly standards
(Newbert, 2007). To ensure our comprehensive coverage of journals, we modelled
the journal selection process on two related review articles (Christofi etal., 2019;
Papanastassiou etal., 2020) and also included other journals ranked number three
and higher in the list of the Academic Journal Quality Guide developed by the Asso-
ciation of Business Schools (ABS). We identified 36 journals (as seen in Table1).
Finally, we used Web of Science and Google Scholar databases to search for arti-
cles. We chose Web of Science as our primary search source for this step because it
provides excellent journal coverage of the relevant disciplines. Moreover, given that
Google Scholar follows a different algorithm that generally has broader coverage
than Web of Science, we also conducted an independent search in Google Scholar to
confirm our original search results.2
Screening andselecting process
This step was intended to identify, screen, and select suitable studies to help answer
our review questions.First, we conducted the initial search in the Web of Science
database with the keywords and journals to identify articles published between 1989
and 2020, and we identified 4,117 articles as potentially relevant for analysis. Sec-
ond, we screened the 4,117 articles against the defined criteria. We reduced the sam-
ple to 4112 by eliminating duplicates, and then scrutinized the 4112 articles based
on the fit-for-purpose criteria (Rashman etal., 2009) by reviewing the abstracts of
the studies. Given that the objective of this review was to synthesize the literature on
the ways firms’ internationalization affect their innovation, we designed the fit-for-
purpose criteria to include studies of whether the internationalization of firms was
directly and explicitly linked to their innovation behaviors or outcomes and what
kind of context applied to the relationship. This step yielded 620 studies.Next, we
examined the introductions and conclusions of those studies to further reduce the
620 papers to 187 highly relevant papers.By means of an additional independent
search in Google Scholar, we added another 14 relevant articles. Last, we conducted
an additional step to ensure that we did not omit any relevant articles. We not only
checked the references for the studies that we identified through the above steps,
but also consulted experts again to search for additional relevant papers. This step
yielded six articles. The final sample size of 207 articles was viable for a systematic
review.
2 The Web of Science allows us to enter all the keywords simultaneously in one go, while the Google
Scholar has a limitation of word count so that we need to do multiple searches. More importantly, the
retrieval algorithm is different. The paper can be retrieved on the Google Scholar as long as the keywords
appear throughout the paper, whereas the Web of Science demands that keywords should exist in the sec-
tion “Title,” “Abstract,” and “Keywords.”
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Innovation throughinternationalization: Asystematic review…
Table 1 Top business journals by focused area searched for the literature review
1 IB journals 3 Management Journals 4 Innovation journals 6 Marketing journals
Asia Pacific Journal of Management Academy of Management Journal Journal of Product Innovation Manage-
ment
European Journal of Marketing
International Business Review Academy of Management Review R and D Management Journal of International Marketing
Journal of International Business Studies Administrative Science Quarterly Research Policy Journal of Marketing
Journal of International Management British Journal of Management Technovation 7 Social journals
Journal of World Business European Management Review 5 Entrepreneurship journals Industrial and Corporate Change
Management International Review Journal of Business Research Entrepreneurship, Theory and Practice Technological Forecasting & Social
Change
2 Strategy journals Journal of Management International Small Business Journal World Development
Global Strategy Journal Journal of Management Studies Journal of Business Venturing 8 Regional journal
Strategic Management Journal Long Range Planning Strategic Entrepreneurship Journal Regional Studies
Strategic Organization Management and Organization Review
Management Science
Organization Science
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Analyzing andsynthesizing
We first used the bibliometric method to make a descriptive analysis of the identified
articles and then conducted a narrative synthesis to investigate and combine the 207
studies to identify prevalent research themes and subthemes.A narrative synthesis
uses words and texts to summarize and interpret results, aiming to review and syn-
thesize multiple studies systematically (Popay etal., 2006).Different from methodi-
cally emphasizing the effectiveness of a particular intervention (e.g., meta-analysis),
narrative synthesis focuses on a wide range of issues and aims to synthesize one
domain. As an established research domain, whether and how firms’ internationali-
zation influences their innovations will include multiple streams and a broad set of
fragmented problems, in which a narrative synthesis can serve as a more effective
method.
In the beginning, we coded the stage of the internationalization process, the
type of innovation behaviors and outcomes, the theoretical perspective, the study’s
research context, and the methodology of each study.We then designed a work-
sheet to record this information and scrutinized it for potential errors. After that, we
adopted the bibliometric method to conduct statistical and descriptive analyses of
patterns that appeared in publications in the following section. Next, we arranged
these studies into themes by deploying line-by-line coding. Eventually, we provided
a comprehensive framework that would fit our review questions and logically inte-
grate the disparate results.
Bibliometric ndings
In Fig.2, we present the number of articles published each year on internationaliza-
tion and innovation, which clearly shows a steadily increasing trend since one article
in 1989, reaching 27 articles in 2020. In Fig.3, we show the distribution of journals
1112
5
21
5
322
6
2
7
10 9
6
12
5
9
11
13 14
6
19
26 27
0
5
10
15
20
25
30
89 91 94 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Number of articles
Publication year (1989-2020)
Fig. 2 Number of articles year on year (1989–2020)
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from 1989 to 2020. As expected, the innovation journal Research Policy and the IB
journal Journal of International Business Studies have the highest number of arti-
cles among the top journals we surveyed, with 28 and 25 articles, respectively.
In Table 2, we list the theories used in our identified articles. Most scholars
(n = 129, 62.32%) used a single theory or perspective, in which organizational learn-
ing theory, institutional theory, network theory (including embeddedness theory),
and knowledge-based view predominated. Eighteen studies involved multiple the-
oretical perspectives, and most authors tended to integrate one perspective with a
resource-based view (including dynamic capabilities), knowledge-based view, or
institutional theory. Table3 is a summary of the top five theories in the domain.
In Table4, we provide a summary of the research methods used in our reviewed
articles. The main method employed was quantitative research (n = 181, 87.44%),
in which 71.82% of the articles involved secondary data, and 28.18% involved sur-
vey data. Descriptive/theoretical analysis (n = 15, 7.25%) and case studies (n = 11,
5.31%) were less common. In Table5, we show the distribution of countries and
regions.
Thematic analysis ofrms’ internationalization andinnovation
Building on 207 publications from 1989 to 2020 in this domain, we suggest the inte-
grative framework shown in Fig. 4. We followed the concept boundary for inter-
nationalization and divided the internationalization process into three stages: the
pre-internationalization stage, the internationalization entry stage, and the post-
internationalization stage. Various strategic decisions and operations in differ-
ent stages play important roles in firms’ innovation. Under each stage, whenever
applicable, we will review the direct impact of internationalization on innovation
behaviors and innovation outcomes separately. Furthermore, the country/region’s
2524
9
1210
4
16
8
11
444231211
28
77
1123
66
32
0
5
10
15
20
25
30
Number of articles
Journals
Fig. 3 Distribution of articles across journals (1989–2020)
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institutional environment, where firms are embedded, and firms’ internal charac-
teristics (e.g., capabilities and resources) serve as contingencies for determining
the extent to which firms can make use of the advantages of internationalization to
achieve innovation.
Pre‑internationalization
The motivations for foreign expansion play direct and important roles in driving
firms’ innovation behaviors, especially for R&D site selections. Technology-seek-
ing MNEs tend to locate their research activities in technology-advanced countries
to gain access to local research institutions and technological talent and to capture
industry knowledge spillover from local competitors (Cantwell & Piscitello, 2005).
For market-seeking MNEs whose business mainly depends on customer demand,
it is more favorable to arrange product development and design activities in highly
Table 2 Theoretical approaches in internationalization-innovation research
Theory/perspective Total number
Single theory/ perspective
 Organizational learning theory 26
 Institution theory/institution-based view 19
 Network theory (including embeddedness perspective) 16
 Knowledge-based view (KBV) 13
 Resource-based view (RBV) (including dynamic capability) 9
 Ownership, location & internalization (OLI) 7
 Social capital theory 6
 Agency theory 4
 Contingency theory 4
 Transaction cost economics (TCE) 3
 Upper echelon theory 3
 Uppsala model 2
 Organization ecology theory 2
 Information processing theory 2
 Other theories 13
 Total 129
Multiple theories/ perspectives
 TCE & KBV/RBV/institutional theory/network theory 4
 Network theory/embeddedness theory & KBV/RBV/institutional theory 5
 Organizational learning theory & KBV/RBV 3
 RBV/KBV/institutional theory 1
 Other theories 5
 Total 18
 No specified theory 60
 Total 207
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Table 3 Mapping the landscape of the top five theories in the internationalization and innovation domain
Theory Frequency How theory is used Examples
Organizational learning theory 26 1. Organizations learn in different ways depending on their learn-
ing ability, prior experiences, and the knowledge base they have
developed. 2. MNEs can learn and develop innovations from deep
interactions with foreign stakeholders. 3. MNEs’ innovation is linked
to their ability to recognize the value of new information, assimilate
it, and apply it to commercial ends.
Zahra etal. (2000);
Xie and Li (2015);
Piperopoulos etal. (2018)
Institution theory/
institution-based view
19 1. The institutional development in one country and the institutional
difference between home and host countries both can affect MNEs’
innovation by influencing the effectiveness of their learning. 2.
MNEs locate their R&D activities in an institutional context defined
by certain rules, norms, and values.
Wu etal. (2015);
Xie and Li (2018)
Network theory (including embeddedness perspective) 16 1. Interpersonal and interorganizational networks provide channels for
knowledge flows. 2. MNEs’ relational embeddedness encourages
more information and knowledge exchange and has lock-in effects as
well.
Williams and Du (2014);
Isaac etal. (2019)
Knowledge-based view 13 Linking knowledge characteristics with MNEs’ innovation, MNEs can
transfer and acquire diversified knowledge from different countries
and kinds of collaborators for their innovation.
Almeida and Phene (2004);
Hsieh etal. (2018)
Resource-based view (including dynamic capability) 9 1. Strategic resources serving as MNEs’ competitive advantages are
valuable, rare, and inimitable. MNEs can integrate and acquire them
from global markets and achieve innovations. 2. MNEs’ ability to
innovate is closely linked to their ability to adapt, integrate, and
reconfigure knowledge globally.
Kotabe etal. (2007);
Michailova and Zhan (2015)
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dispersed locations and in host countries with a large customer base (Shimizutani
& Todo, 2008; von Zedtwitz & Gassmann, 2002). Other scholars compare home-
base-exploiting (HBE) and home-base-augmenting (HBA) motivations. HBE
MNEs that seek to exploit firm-specific capabilities usually establish overseas R&D
activities close to manufacturing facilities and marketing facilities, where they can
exploit their own knowledge base to produce new products to meet local demand;
HBA MNEs that seek to augment their knowledge base prefer to establish R&D
activities close to universities and government laboratories because they can access
unique resources and use externalities created by local institutions and firms (Bas
& Sierra, 2002; Kuemmerle, 1999). Moreover, scholars have discussed how institu-
tional-related motivations (e.g., escaping from the weak institutional environments
in home countries) drive firms to search for overseas R&D sites that can provide
Table 4 Research method Methodology Total number Percentage (%)
Descriptive/theoretical analysis 15 7.25
Case study 11 5.31
Quantitative research
 Survey data 51 24.64
 Secondary data 130 62.80
Total 207 100.00
Table 5 Countries and regions
studies Country Total number
Single country
Developed country
US 24
Japan 12
Spain 11
German 7
UK 6
Sweden 5
Italy 4
others 5
Developing country
China 39
India 8
others 5
Multiple economies
Multiple developed economies 15
Multiple developing economies 2
Not specified and not mentioned 64
Total 207
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access to sophisticated technologies or stronger protections for intellectual property
(Cuervo-Cazurra & Ramamurti, 2017). In addition, it is believed that developed
multinational enterprises (DMNEs) tend to expand across country borders to exploit
their own technological assets and innovative capabilities, whereas emerging multi-
national enterprises (EMNEs) are deemed to seek overseas strategic assets with the
intention of benefiting from proximity to well-developed institutions and key exter-
nal actors to take advantage of spillovers and develop competitive advantages (Lun-
dan & Dunning, 2008; Luo & Tung, 2007).
Internationalization entry
At this stage, firms’ strategies, including (a) location choice (i.e., where to enter), (b)
entry mode (i.e., how to enter), and (c) temporal behavior (i.e., when to enter), have
been found to have a great influence on firms’ innovation behaviors and outcomes.
Location choice
The choice of location consists of topics either focusing on a particular location or a
portfolio of locations and the dominant theories in explaining its roles in innovation
are organizational learning theory, institutional theory, and resource-based views
(Hitt etal., 1997; Xie & Li, 2015; Zahra etal., 2000).
The determination of a particular location implies firms’ choice regarding the
location features, in which the advantages (e.g., infrastructures, policies, markets,
and talents) in a certain host country not only stimulate firms’ innovation behaviors
but also support them in producing more innovation outcomes. For example, locat-
ing in countries with high levels of protection of intellectual property rights could
Fig. 4 A comprehensive framework between internationalization and innovation
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foster MNEs’ R&D investments because the risk of being imitated is low, and firms
can gain more profits from their R&D activities (Ito & Wakasugi, 2007). Locating in
developed countries serves as an effective channel for EMNEs to overcome internal
resource constraints and to escape from weak institutional environments in the home
country, thereby achieving better innovation outcomes such as new products and
patents (Fu etal., 2018; Piperopoulos etal., 2018). On the other hand, knowledge
originated in and developed for an emerging economy can also become an important
source of innovation outcomes for firms in an advanced country (known as reverse
innovation). This knowledge can help them cater to major emerging markets and
low-priced segments in developed countries (Huang & Li, 2019). Besides location-
specific advantages, the difference or distance between a certain host country and the
home country is the other location feature, which has influences on firms’ innova-
tion. For instance, Joshi and Lahiri (2015) found an inverted U-shaped relationship
between language friction and R&D alliance formation in host countries, because
while institutional difference offers diverse knowledge, it incurs higher transaction
costs and hinders interactive learning. McCarthy and Aalbers (2016) highlighted the
hurdles in distant countries (e.g., transaction costs, agency costs, and communica-
tion and knowledge transfer difficulties) and found that geographical distance has
negative impacts on innovation outcomes (i.e., new patents).
Another topic is focused on the portfolio of locations, especially the diversity of
country portfolios (i.e., location diversity). Most studies under this topic link loca-
tion diversity with innovation outcomes, with two contrasting arguments. On the
one hand, scholars found that location diversity could improve firms’ learning and
innovation (Elia etal., 2020; Wu etal., 2015; Zahra etal., 2000). First, it was ben-
eficial for firms to acquire innovative resources (i.e., advanced technology and tal-
ent), identify innovative opportunities, and learn from diverse foreign stakeholders
across different countries, and such increased knowledge and resource bases could
fuel firms’ innovation (Hitt etal., 1997). Second, expansion into diversified interna-
tional markets provided potential for greater returns on innovation, stimulating firms
to innovate further (Hitt etal., 1994). Third, compared to domestic firms, interna-
tionally diversified firms faced fierce competition in foreign markets, encouraging
them to innovate quickly (Wu etal., 2015). On the other hand, other studies have
observed that regardless of the benefits of location diversity for firms’ innovation
outcomes, challenges for innovation could increase. From the perspective of insti-
tutional theory, firms located in a wider range of countries face greater risks and
uncertainties in diverse institutional settings, and firms have to invest more efforts
in operational activities to cope with these uncertainties, so minimal attention could
be left for innovation activities (Hsu etal., 2015; Wu & Park, 2017). High coopera-
tion and communication costs associated with increased location diversity also make
it hard for firms to support their innovation activities effectively (Lahiri, 2010).
Moreover, internationally diversified firms faced learning challenges by which they
suffered from information overload and had difficulty identifying useful informa-
tion as increasing complexities arise from having diverse locations (Wu & Park,
2017), which is especially true for EMNEs due to their limited absorptive capacity
(Li etal., 2010). Thus, researchers found an inverted U-shaped relationship between
location diversity and innovation outcomes (Lahiri, 2010; Wu & Park, 2017).
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To address these mixed findings in the relationship between location diversity
and innovation, researchers have further explored several firm characteristics. It is
agreed that firms’ capabilities, such as dynamic capability and absorptive capacity,
can help them generate more innovation outcomes from location diversity through
identifying and acquiring externally generated knowledge more effectively (Wu
etal., 2016; Xie & Li, 2015). Hsu etal. (2015) found that compared to MNEs with-
out international experience, internationally experienced MNEs gained more bene-
fits and less harm from location diversity because international experience mitigated
complexities and uncertainties in the host country. Tsao and Lien (2013) suggested
that family MNEs gain more new patents through location diversity than nonfamily
MNEs.
Entry mode
When entering global markets, another critical step is how to enter, namely, the
entry mode decision. Entry mode can be divided into two categories: equity and
non-equity, in which the former requires high levels of commitment and control
from parent firms (e.g., joint venture, wholly owned ventures, greenfield and acqui-
sition), while the latter needs a low level of commitment and control (e.g., license
and export) (Pan & Tse, 2000). Organizational learning theory has been cited most
frequently in this topic (Xie & Li, 2015; Zahra etal., 2000).
In terms of innovation behavior, scholars have discussed how entry mode deci-
sion affects firms’ R&D investments. As for non-equity mode, Chittoor etal. (2015)
believed export could stimulate firms’ R&D investments because firms need to
enhance their capabilities through internal R&D investments to grasp a multitude
of learning opportunities in export. But the influence of equity mode on innovation
behavior is not conclusive. Hitt etal. (1991) found a reduction in R&D intensity
for post-acquisition affiliates because acquisitions that needed high degrees of com-
mitment and control appeared to divert financial resources and managers’ attention
from R&D investments, whereas Bertrand (2009) proposed that cross-border acqui-
sition could encourage post-acquisition affiliates’ R&D investments because it pro-
vided efficiency gains such as generated scale and scope economies to spread the
fixed costs over more R&D activities.
For the innovation outcome, most scholars have addressed the fact that both
equity and non-equity modes can help firms improve it by accessing diverse for-
eign knowledge and by learning advanced technologies, while the underlying mech-
anisms are somewhat different (Cassiman & Golovko, 2011; Piperopoulos et al.,
2018; Zahra etal., 2000). For the non-equity mode, such as in export, firms face
lower barriers to learn from internationalization because this entry mode requires
less sophisticated management skills and involves fewer commitments or risks (Cas-
siman & Golovko, 2011). Xie and Li (2018) found that export created a channel
for domestic firms to learn from foreign partners, and thus export intensity posi-
tively affected new product outcomes for Chinese firms. Compared to the non-equity
mode, the equity mode provides firms with more complex knowledge sources and
learning opportunities through deeper interactions with foreign stakeholders (Guo
& Clougherty, 2020; Zahra etal., 2000, 2009). Zahra et al. (2009) found that the
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greater the involvement of modes of entering foreign markets, the greater the num-
ber of new products because firms can increase their exposure to different informa-
tion sources in the host country.
Further, scholars have compared different equity modes in influencing innovation
outcomes. For example, international joint ventures (IJVs) with frequent interactions
with JV partners have more diversified knowledge than wholly owned ventures, and
Yao et al. (2013) found that knowledge complementarity between JV parties can
improve partners’ absorptive capacity, further increasing international JVs’ new
product performance. De Noni and Apa (2015) found that greenfield could foster
exploitative learning, while cross-border acquisition could lead to exploratory learn-
ing that enables the development of new skills and capabilities currently not in the
MNEs’ repertoire.
Temporal behavior
Firms’ foreign expansion is a dynamic process, in which time matters (Johanson &
Vahlne, 1977; Vermeulen & Barkema, 2002). Entry decisions entail the timing and
speed of entering particular foreign markets, and scholars have started to discuss
how such temporal behaviors influence firm innovations. The timing of entry targets
the time lag between the founding of a firm and its initial international expansion, in
which international new ventures (INVs) have attracted much attention because they
internationalize early in their life cycle, and scholars have found that INVs can lever-
age learning advantages (i.e., learn quickly and flexibility) to facilitate their knowl-
edge absorption and creation (Zahra etal., 2000). As for the entry speed, defined as
the number of foreign expansions undertaken by a firm over a specific period of time
(Yang et al., 2017), empirical evidence linking it with innovation is still lacking.
Despite scholars’ having found that “sustaining” entry could increase R&D invest-
ments and new product outcomes through maintaining their exposure to the global
markets to learn more effectively (Huang, 2013), it is still unclear how the speed in
sustaining entry influences firms’ innovations.
Post‑internationalization
After expanding into other countries, MNEs should manage their foreign operations
through interacting with multiple actors in various complex networks (Johanson &
Vahlne, 2009). Networks provide channels for knowledge flows (Bergek & Bruze-
lius, 2010), and there has been a significant increase in discussing MNEs’ innova-
tion through network perspectives and knowledge-based views (Andersson et al.,
2002; Williams & Du, 2014). Thus, we will use a network lens to guide the sum-
mary of literature in this section (see Fig.5). Since a firm’s foreign practices directly
influence the final performance that is crucial for a firm’s survival and development
(Beugelsdijk etal., 2017; Lundan & Dunning, 2008), scholars concentrated more
on the impacts of firms’ foreign operations on the innovation outcomes under this
subtheme.
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MNEs’ internal network
MNEs are composed of a complex network that includes a large number of intercon-
nected internal units, and each unit is highly involved in MNEs’ absorption, use,
and generation of knowledge (Bergek & Bruzelius, 2010). The research on MNES’
internal networks mostly addresses how to design proper hierarchical governance
between parent and foreign subsidiaries and how to develop parent–subsidiary and
subsidiary–subsidiary relationships, which can facilitate knowledge transfer and
innovation outcomes.
MNEs establish hierarchical governance to control and coordinate overseas sub-
sidiaries to achieve their global organization objectives, for which one core research
question is how the degrees of control from parent firms affect subsidiaries’ innova-
tion outcomes but studies remain controversial. Mudambi etal. (2007) found that
the lesser the degree of parent controls, the higher the degree of knowledge crea-
tion in subsidiaries because minimal controls positively enhance their own intrinsic
inspiration to innovate. However, Beugelsdijk and Jindra (2018) argued that despite
higher degrees of new product novelty benefiting from subsidiaries’ autonomy, man-
agerial involvement from headquarters was required as well, because extremely low
degrees of control are dangerous that may result in rent-seeking behavior by subsidi-
ary managers, a lack of information exchange and shared identity, and the liability
of internal isolation. Moreover, scholars have discussed the types of control modes
and found that social control and result control can build a relaxing and educational
organizational atmosphere, thereby promoting knowledge flow, stimulating mem-
bers’ creativity, and finally enhancing subsidiaries’ innovation activities, whereas
formal control and process control hindered innovation behaviors and outcomes
(Park & Choi, 2014).
Internal network
MNE Headquarter
Foreign
Subsidiar
y
1
Foreign
Subsidiar
y
2
Domestic
Subsidiar
y
1 Suppliers
Customers
Competitors
University
institutions
External network Dual networks
Fig. 5 MNEs’ operation in internal, external and dual networks
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Besides governance choice, a growing body of literature has documented that
appropriate parent–subsidiary and subsidiary–subsidiary social relationships ena-
ble MNEs to leverage knowledge effectively and achieve higher innovation out-
comes. For example, communication and reciprocity among well-embedded internal
actors of MNEs could facilitate knowledge flow and increase MNEs’ new patents
(Asakawa etal., 2018; Gölgeci etal., 2019).
In addition, scholars are interested in the attributes of the structure of internal
MNE networks, such as the different positions that internal units occupy within
them. For example, Tsai (2001) researched two large MNEs and found organiza-
tional units can produce more new products than other internal units when they are
central to the knowledge transfer network of the MNE. Tortoriello (2015) certified
that in the internal MNE network, when individuals (e.g., employees) were located
in rich structural holes, they could leverage knowledge from others more effectively
toward the generation of new patents.
MNEs’ external network
MNEs tend to develop external networks with actors located outside their bounda-
ries. Innovation requires knowledge diversity, and firms that are good at searching
for and integrating different types of knowledge from external networks achieve
better innovation outcomes than those that are not. Collaboration with partners
(e.g., suppliers, customers, competitors, universities, or other institutions and gov-
ernments) in external networks is one efficient way to provide MNEs with differ-
ent types of knowledge to innovate. First, in partnership with global suppliers on
activities such as offshoring of intermediate production (Valle etal., 2015) and R&D
activities (Nieto & Rodríguez, 2011), MNEs can trigger new product innovations by
acquiring knowledge about new components and materials and other low-cost and
high-quality innovation resources. Nevertheless, researchers have found an inverted
U-shaped relationship between R&D offshore outsourcing and product innovation,
considering higher coordination and control costs, and overdependence on exter-
nal knowledge from suppliers can cause neglect of the development of MNEs’ own
knowledge stocks (Mihalache etal., 2012). Second, global customers provide MNEs
with more diversified market knowledge, and MNEs’ customer-oriented strategy to
consciously engage with foreign customers helps them keep track of their chang-
ing demands and generate innovative ideas (Harirchi & Chaminade, 2014; Hsieh
etal., 2018). Third, engaging in collaboration with host country competitors could
complement subsidiaries’ knowledge about local industry dynamics, local customer
demands and preferences, and ways of handling local regulatory and social pres-
sures, which would further help them create new products (Henttonen etal., 2016).
Last, universities are also common partners for MNEs to cooperate with because
they can synthesize knowledge and ideas from wide ranges of industries and govern-
ments, facilitating MNEs’ knowledge transfer, exploitation, and creation (Etzkowitz
etal., 2005).
Another relevant discussion is about how the relationships between MNEs
and external partners influence their innovation outcomes. Previous studies have
revealed that subsidiaries’ well-embedded social relationships with local partners in
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the host country have helped them achieve more innovation. For example, Isaac etal.
(2019) found that subsidiaries’ external relational embeddedness based on trust and
adaptation was positively associated with subsidiaries’ new products and processes
because supportive social relationships can help them overcome the liability of for-
eignness, adapt to local institutional environments discourage opportunism, reduce
the sense of competitiveness and hostility, and encourage knowledge exchange and
mutual learning. On the other hand, researchers have focused on the impact of gov-
ernance of the global supply chain on MNEs’ innovation. They compared govern-
ance patterns in offshoring having to do with whether they were affiliates, in which
affiliates could offer firms fewer appropriability problems and risks associated with
knowledge transfer, which could have greater impacts on new products than inter-
dependence (Steinberg etal., 2017). There is also the issue of how rigid-explicit
behavioral controls and relational norms-based controls in the global supply chain
influence MNEs’ innovation outcomes (Nieto & Rodríguez, 2011).
Furthermore, scholars are trying to provide a holistic understanding of the exter-
nal MNE network composed of different types of actors, referring to its structural
attributes. For instance, combined with institutional theory, Vasudeva etal. (2013)
found that when the broker MNE locates in a corporatist country where collabora-
tion and communication dominate (e.g., Japan), it is more capable of gaining inno-
vation benefits from spanning structural holes in its global alliance networks. This is
because such institutional environments can facilitate an MNE to manage a partner-
ship better and to transfer and integrate knowledge more effectively than in the lower
corporatist countries.
MNEs’ dual networks
MNEs’ subsidiaries are in essence embedded in dual networks and interact with
multiple agents within internal and external networks. Recently, researchers have
paid attention to how subsidiaries manage to innovate in the dual networks, most
frequently using embeddedness theory (Achcaoucaou et al., 2014; Berry, 2018).
For example, Berry (2018) compared how the embeddedness across a parent, host
country, and third country knowledge networks influence foreign operation’s innova-
tion outcomes. She found that high embeddedness within the parent firm motivated
subsidiaries to extend the parent technology paradigm, thus leading to incremen-
tal innovation outcomes; while more distant knowledge from external networks can
help subsidiaries generate more radical combinations of knowledge.
Meanwhile, one crucial question arises of how the interactions for subsidiar-
ies’ dual embeddedness affects their own innovation outcomes, and studies reach
no consensus. Some scholars have argued that dual embeddedness may create con-
flicts that inhibit subsidiaries’ innovation. For example, Andersson et al. (2005)
found that parent firms’ direct controls of subsidiaries through expatriates could
impede their external embeddedness in the host country, given that managers from
the parent firm were unfamiliar with local business environments and need to take
time to build local relationships, which prevented subsidiaries from creating new
knowledge through external network embeddedness. Subsidiaries’ high embed-
dedness in the parent knowledge network could weaken the positive relationship
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between embeddedness in the host country and their radical innovation outcomes
(Berry, 2018). Also, higher external embeddedness could lead to subsidiaries’ isola-
tion from MNEs’ internal networks, thus hampering internal knowledge sharing and
creation (Monteiro etal., 2008). Others have addressed the fact that the degrees of
embeddedness in both networks could enhance each other, facilitating MNEs’ inno-
vation outcomes. Subsidiaries’ embeddedness in external networks could strengthen
their internal embeddedness by accelerating the transfer of newly acquired knowl-
edge to be further exploited within MNEs (Ciabuschi etal., 2014); and subsidiaries
that develop knowledge-intensive linkages with specific internal and external coun-
terparts simultaneously could achieve higher innovative levels because they could
explore complementarities and combine knowledge as sources of strategic assets
(Figueiredo, 2011).
Contingency factors
The relationship between internationalization and innovation is not linear but
depends on a number of contingencies externally and internally to firms.
External country/region institutions
Innovation activity is highly embedded in national/regional institutional con-
texts, and the institutional environments have important implications for the costs
of knowledge transaction and communication and for the difficulty of knowledge
flow and absorption (Michael, 1990), which can further improve or hamper firms’
innovations during their internationalization process. As for the home country, Xie
and Li (2018) adopted the institutional perspective to explore the moderating role of
home regional institutional developments in the relationship between firms’ exports
and new products. They found that well-developed innovation support institutions
and market intermediaries at home helped firms gain more new products by facilitat-
ing knowledge flows and firms’ combination of overseas and local knowledge, but
that market openness in home regions reduced firms’ access to innovation through
exports because an open market could also provide them with foreign knowledge
at home that could substitute for going abroad. Concerning the host country, it is
generally believed that well-developed institutions in a host country can help firms
achieve more innovation (Piperopoulos et al., 2018; Wu et al., 2018). Moreover,
institutional distance represents an impediment to the transfer of technologies and
combination of knowledge; large institutional distance can hinder firms’ new prod-
uct outcomes through internationalization (Xie & Li, 2018).
Firm internal characteristics
First, innovation also depends on firms’ abilities to learn and integrate diverse
knowledge and resources from multiple countries. On the one hand, scholars have
discussed the impacts of firms’ dynamic capabilities on innovation outcomes,
in which the sourcing capability can help firms effectively recognize and absorb
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knowledge in the host country, and combination capability helps combine inter-
nal and external knowledge and knowledge reconfiguration (Michailova & Zhan,
2015; Phene & Almeida, 2008). On the other hand, firms with strong absorptive
capacity can better recognize and acquire diverse knowledge in international mar-
kets and internalize it into their own knowledge pool (Xie & Li, 2015; Yao etal.,
2013). Moreover, Li etal. (2016) found that internationalization has a positive effect
on new patents when small/medium-sized enterprises’ (SMEs) R&D or marketing
capability is strong.
Second, firms’ resources including human capital, experience, and firm size,
also can influence their innovation in the internationalization process. Discussions
related to human capital mainly include managers and R&D personnel. For exam-
ple, Elenkov and Manev (2009) found that senior expatriates’ visionary transforma-
tional leadership could influence subsidiaries’ innovation adoption rate because this
kind of leadership promotes an organizational culture that encourages experimenta-
tion, risk taking, and freedom from punishment; Li et al. (2013) found that R&D
expatriates from headquarters significantly contributed to innovation within sub-
sidiaries located in an emerging country because R&D personnel deployed by the
parent firm could facilitate internal transfer of high-quality technological knowledge
within MNEs. Zhao (2006) further explored that MNEs could use internal knowl-
edge linkages to protect their innovations in inadequate external institutions, since
those innovations with closely knit internal technology structures are more difficult
to imitate. Moreover, experience could facilitate MNEs’ local knowledge acquisition
and lead to greater organizational learning in foreign markets, thus increasing their
innovation outcomes, and researchers discussed previous international experience
(Fu etal., 2018), prior R&D project experience (Demirbag & Glaister, 2010), and
CEO industry experience (Nuruzzaman etal., 2019). In addition, a few authors have
addressed the role of firm size in innovation, such as Golovko and Valentini (2014),
who found that SMEs focused on product innovation when they entered export mar-
kets owing to their limited resources, narrower business scope, and difficulty dealing
with foreign price discrimination, whereas large exporting firms were incentivized
to pursue process innovation to improve their efficiency.
Future research
In this section, we have further highlighted five important future research areas.
Unpacking thedynamic andcomplex nature ofinternationalization entry
ininnovation
As discussed previously, the relationship between firms’ location diversity and inno-
vation outcomes is yet to be settled, and literature regarding the relationship between
temporal aspects of internationalization and innovation is still underdeveloped. We
believe future researchers can dive deeply into unpacking the dynamic and complex
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nature of internationalization entry to fill the gaps, resolve prior inconsistencies, and
move the discussion forward.
First, there is a need to examine how firms’ temporal aspect of foreign expansion
(e.g., entry speed and rhythm) influences their innovation. On the one hand, how
rapid entry into multiple countries influence the effectiveness of firms’ innovation
deserves more attention. Despite the fact that high-speed foreign expansion can help
firms quickly identify new opportunities and enjoy learning curve effects, it can also
lead to time-compression problems that can significantly reduce the efficiency of
learning from global markets (Vermeulen & Barkema, 2002; Yang etal., 2017). A
close look at internationalization speed’s impact on firm innovation would be mean-
ingful for firms to balance the tension associated with speed. On the other hand,
entry rhythm refers to whether firms expand into multiple countries at an even pace,
which is also worth further investigation. Shi and Prescott (2012) found that a rela-
tively steady and regular entry pace could allow firms to allocate absorptive capaci-
ties for learning and accumulating knowledge, which could enhance their financial
performance. Given such relevance, it is necessary to conduct empirical studies to
certify the impact of entry rhythm on firms’ innovation outcomes. An unpacking of
such dynamic natures of internationalization entry would not only explicitly high-
lights the importance of time in the relationship between internationalization and
innovation, but also provide new angles to resolve the aforementioned inconsistent
relationships between location diversity and innovation outcomes.
In addition to investigating temporal aspects of internationalization indepen-
dently, it could be interesting to consider the combination of time and space to better
explain the dynamics of internationalization entry. In firms’ location diversity and
innovation research, the combination of time (i.e., when to enter) and location (i.e.,
where to enter) can be captured as entry order. For example, two Chinese multina-
tional firms, Haier and Huawei, implemented location diversity strategies. Haier first
entered the United States and then moved into Southeast Asia, while Huawei first
entered Russia and then moved to German.3Considering that firms gradually build
their capabilities through a series of events occurring over time (Beugelsdijk etal.,
2017), it could be argued that even with both companies entering multiple countries,
the learning differences associated with the entry order could result in heterogene-
ous innovation outcomes. Therefore, we believe it would be fruitful for IB schol-
ars to further understand this dynamic process of firms’ internationalization and its
impact on innovation.
Furthermore, the internationalization entry stage is not only dynamic but also
complex, in which a single factor is not sufficient to explain the presence of a par-
ticular outcome (Beugelsdijk et al., 2017). Expanding into several countries is a
complex strategy with temporal and spatial dimensions, intertwined with interna-
tionalization motivation, the economic state of the host country (emerging or devel-
oped), the difference between the host and home countries, and the associated entry
mode decision. Different configurations of these factors may impose heterogeneous
requirements on managers’ attention, firms’ capabilities, or routine developments
3 Sources are available on official websites of Huawei and Haier
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and therefore may have distinctive influences on firms’ innovation. For this reason,
a configurational approach to investigating a series of factors, including firms’ loca-
tion diversity and their influence on innovation, would generate more insightful con-
clusions for future research. This would also respond to the recent call to take a
configurational approach in explaining the complex IB phenomenon by using quali-
tative comparative analysis (Fainshmidt etal., 2020).
Deepening theunderstanding ofMNEs’ networks andinnovation
In the preceding sections, we have outlined key strands that MNEs’ foreign opera-
tions within networks at the post-internationalization stage contribute to innovation
outcomes. However, several gaps still remain.
First, it is necessary to discuss both the benefits and costs of embeddedness in
MNEs’ operation networks when considering innovation. Despite a well-embedded
relationship providing benefits for MNEs’ learning and innovation, embeddedness
can also incur costs for MNEs’ innovation. For example, deeply embedding with
one partner can lead to lock-in problems such as learning inertia and inadaptabil-
ity (Jiang etal., 2018), which may further reduce MNEs’ innovation motivations,
restrict access to new partners and knowledge, and inhibit the identification of new
opportunities. However, the potential negative impacts on innovation are still under-
explored. Future researchers should explore innovation barriers and threats arising
from embeddedness in MNEs’ internal and external networks. More importantly, it
would be insightful to investigate the boundaries of how embeddedness can effec-
tively help MNEs transfer knowledge from internal units and external partners and
enhance their innovation capability.
Second, there is also a need to look closely at the role of MNEs’ external network
structures in their innovation. One critical direction would be capturing and examin-
ing the MNEs’ position in external networks, such as how MNEs’ proximity to the
broker affects their innovation outcomes. Moreover, it is vital for future researchers
to examine the role of the dynamic nature of MNEs’ network structure in innova-
tion. MNEs’ network structure is not static, and MNEs can mobilize from the edge
to centrality in an external network over time or vice versa, and can constantly con-
nect and disconnect with partners in their networks as well (Cuypers etal., 2020).
The dynamic nature of network structures can bring fluctuations in MNEs’ learning
and knowledge acquisition, thus the question of how the dynamic nature of network
structures influences MNEs’ innovation outcomes should be further unveiled.
Third, particularly for foreign subsidiaries, they are concurrently embedded in
internal and external MNE networks. No doubt that they can leverage the comple-
mentary knowledge and resources from dual embeddedness (Figueiredo, 2011), but
there are conflicts between both networks that are hard for subsidiaries to manage
it well (Andersson etal., 2005). So, it is necessary to clarify how the interrelation-
ships between subsidiaries’ ties to internal MNE networks and ties to non-MNE-
owned actors affect their innovation. Moreover, scholars should also borrow wisdom
from network literature to appropriately measure dual embeddedness and develop an
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in-depth understanding of dual networks, which can enrich our understanding of the
nature of internationalization and innovation.
Extending institutional impact onMNEs’ innovation
With regard to external institutional environments, previous scholars have discussed
how institutions in both host and home countries, and the institutional distance,
influence MNEs’ innovation in their internationalization processes. However, insti-
tutional environment is more complex and multi-layered, which deserves further
research.
First, MNEs do not simply adapt to institutions; they can actively influence the
institutions in which they are embedded (Cantwell etal., 2010). Thus it is impor-
tant to elaborate on how the co-evolution of MNEs and local institutional environ-
ments affects their innovation behavior and outcome. For instance, when entering
emerging economies with dynamic and underdeveloped institutional environments,
DMNEs could engage in political activities such as lobbying or building political
connections with local government leaders to obtain political legitimacy, access
useful resources, and influence public policy (Jean etal., 2018). Therefore, viewing
interactions between MNEs and institutional environments from a co-evolutionary
perspective, future researchers could offer an informed understanding of how MNEs
proactively engage in the development of host country institutions to gain more pro-
tections and profits for their innovation.
Second, given the increasing trend of de-globalization (e.g., global geopolitics
and trade tensions), scholars should dive deeply into how MNEs innovate in such
contexts. The trend of the anti-globalization movement could leave the global politi-
cal environment more volatile. For instance, populist reactions could make host
countries crowd out foreign firms via national protectionism, which further hampers
MNEs’ overseas knowledge search (Lorenzen etal., 2020). A technology blockade
could isolate foreign firms from local innovation resources (e.g., talents, technolo-
gies, and research institutions) (Luo, 2021). With this backdrop, MNEs’ global R&D
alliance network could be disrupted, and the worst situation would be that firms
barely form their global R&D collaboration. Therefore, scholars should pay more
attention to ways de-globalization changes the patterns of firms’ innovation behav-
iors, especially for their international R&D sites and collaborations, and to how such
changes influence their innovation outcomes.
Last, we need to explore the multi-dimensions and multi-layers of institutions to unfold
their complex influences on MNEs’ innovation. On the one hand, the interactions of
numerous dimensions of institutions (e.g., formal and informal institutional environments
or regulative, cognitive, normative institutions) may facilitate or constrain MNEs’ knowl-
edge-seeking, absorption, and application, thereby significantly hampering their innova-
tion activities and outcomes. Therefore, future researchers should capture such multidi-
mensional attributes of institutions to explore their impact on MNEs’ innovation. On the
other hand, previous scholars have underestimated other levels of institutional environ-
ment (e.g., municipal) that could lead to large heterogeneity on a national or regional
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level in an institutional environment. It is necessary to capture multi-layer institu-
tional environments including country, region and municipality levels, which can
help us better understand the levels of institutional impact on innovation.
Revising internationalization andinnovation inthedigitalization age
With the development of digitalization, changes have taken place in the global mar-
kets in terms of who participates, how business is done across borders, and where
the economic benefits flow (Manyika et al., 2016). Such changes may provide a
novel context to challenge and revise the relationship between internationalization
and innovation in previous studies.
First, differently from traditional exports, digitalization could facilitate firms’
entry into global markets via digital platforms and make it possible to expand into
multiple countries in a short time, such as selling manufactured goods via AliEx-
press or Amazon. This can decrease transaction costs, leaving more resources for
firm innovation, while learning hurdles arise from distant interactions as well (Deng
etal., 2022). Thus, the way firm internationalization through digital platforms influ-
ences firms’ innovations deserves attention. Beyond traditional border spanning of
physical commodities, the development of digitalization is enabling firms to cross
geographic boundaries virtually, such as by selling applications via the Apple Store.
A key challenge for such firms is the concern over digital privacy, which has been
attracting increasing attention from host governments, associated with tough regula-
tory constraints (e.g., General Data Protection Regulation),4thereby inhibiting digi-
tal firms’ operations, knowledge sharing, and innovation activities across different
countries. Therefore, a better understanding of host countries’ regulations on digital-
related concerns may improve digital firms’ reactions to global innovation.
Second, it would be intriguing for future researchers to unpack the influence of
digitalization on MNEs’ innovations through their networks. Digital technologies
can help MNEs manage international operations within internal and external net-
works more efficiently, such as helping to develop virtual collaborative networks
composed of individuals from different countries and various firms. MNEs can form
virtual teams to coordinate and manage international innovative activities without
physical colocation, reducing costs and inspiring innovative ideas. However, virtual
teams face challenges as well, in terms of management and coordination issues and
mutual trust building (Zeschky etal., 2014), which can impede MNEs’ promotion
of innovation projects. Therefore, there is a need to explore how MNEs develop and
manage virtual networks to make best use of digital technologies, thus achieving
more innovation outcomes.
Last, in the digital age, scholars should further pay attention to how firms’ digi-
tal-related capability influences them to take advantage of resources in their inter-
nationalization process, thereby influencing their innovation. For example, given
that MNEs may be swimming in the vast sea of data, big data analytic capability
4 The General Data Protection Regulation is a regulation in EU law on data protection and privacy in the
uropean Union and the European Economic Area
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(BDAC) can help MNEs optimize operations and identify loyal and profitable cus-
tomers, including BDA management, infrastructure, and talent-related aspects and
capabilities (Agarwal & Dhar, 2014). MNEs with this capability are more likely to
identify and seize innovation opportunities in the global markets. Inquiries address-
ing the moderating role of digital-related capabilities can be useful to enhance our
understanding of the relationship between internationalization and innovation dur-
ing the development of digitalization.
Comparing DMNE’s andEMNE’s innovation
Over the past two decades, some MNEs from emerging economies have risen to
leading positions in various industries. Despite the fact that Anand etal. (2021) con-
cluded that EMNEs’ innovation is largely shaped by the challenges of catching up
with advanced economies, comparisons between DMNEs’ and EMNEs’ innovation
through internationalization have drawn little attention.
First, researchers should test and revise traditional IB theories that emerged from
the DMNE experience for understanding the innovation of EMNEs. We know that
DMNEs’ and EMNEs’ strategies at each stage of internationalization may be differ-
ent, leading to divergent consequences in terms of innovation. For example, at the
internationalization entry stage, DMNEs mostly follow the Uppsala model and first
enter more proximate and similar countries, while EMNEs tend to exploit differ-
ences rather than similarities across countries by expanding into physically or eco-
nomically distant countries (Ramamurti, 2012). It is worth exploring the distinction
between DMNEs’ and EMNEs’ internationalization processes and linking such dif-
ferences to understand their innovational activities or outcomes.
Second, another way to look at DMNEs’ and EMNEs’ differences is to compare
government influences on both types of MNE. Compared with DMNEs, EMNEs
are embedded in less-developed institutional environments that often lack political
constraints, which are more likely to experience excessive governmental political
meddling, discouraging EMNEs from innovating (Lazzarini etal., 2021). Neverthe-
less, some scholars have found that EMNEs could cultivate advantages difficult to
replicate, such as strong political ties (Li etal., 2014), which could help them lever-
age government resources with more efficiency than DMNEs in support of their own
innovations. Therefore, comparing the distinct impacts of government involvement,
such as the degree and different types of government involvement (e.g., state owner-
ship, government affiliations, government policies, and government attention) could
enrich our understanding of how governments can best encourage and support dif-
ferent types of firms to innovate.
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Innovation throughinternationalization: Asystematic review…
Third, it is generally believed that DMNEs have ownership advantages, such as
superior technological competence and absorptive capacity, whereas EMNEs also
have different kinds of ownership advantages that deserve further focus. For exam-
ple, EMNEs have grounded understanding of customer needs in emerging markets,
the ability to adjust and manufacture products and services at ultralow costs, and
the capability to develop good enough products for local customers (Adarkwah &
Malonæs, 2020; Ramamurti, 2012). Therefore, it should be meaningful to compare
the ways EMNE and DMNE leverage their distinctive ownership advantages to
achieve innovations they learn about from foreign countries.
Conclusion
There is no doubt that internationalization has become one of the central channels
for firms to develop innovation capabilities. Our paper is intended to provide a fruit-
ful account of the past research and future agendas on this domain. We gravitated
around two key research questions: What is the current state of research on the rela-
tionship between internationalization and innovation? What implications for future
research do our findings suggest?
For the first question, we have provided a comprehensive picture regarding
whether and how firms’ internationalization strategies and operations at each stage
influence their innovation behaviors and outcomes, with the moderating role of
external country/region institutions and firms’ internal characteristics. In addition,
although past research has provided considerable insight, our review has identified
several important gaps for future research, which we think warrant greater focus in
the future. Table6 and 7 are short summaries responding to both research questions.
Despite the fact that our review has depicted a more comprehensive picture
embracing key themes of the literature that have analyzed the relationship between
internationalization and innovation, we still recognize limitations in the process
of literature identification owing to different starting points, selection criteria, and
author biases. Regardless, our review of the literature from 1989 through 2020
shows that there has been considerable progress in the past three decades on a num-
ber of issues in this domain, and ample research agendas may also play important
roles in the future development of this relationship. We hope that our review facili-
tates related IB research that resonates with Buckley etal. (2017) to produce greater
“impact, relevance, and a connection to the real world” (p. 1053).
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Table 6 A Summary of the different themes in our review
Stage Innovation behavior Innovation outcome
Pre-internationalization Firms’ various internationalization motivations can drive
their international R&D activities
No direct linkages (Motivation should firstly influence
behavior)
Internationalization
entry
1. The advantages of a particular host country where firms
locate can stimulate their R&D activities
2. The difference between the host country where firms
locate and their home country affect their R&D activities
3. Non-equity entry mode in internationalization incentiv-
izes firms to make R&D investments, whereas the role of
equity entry mode in R&D activities is still controversial
4. Sustaining entry into global markets can help firms learn
effectively, thereby motivating R&D investments, whereas
the role of temporal behaviors behind it remains unclear
1. The advantages of a particular host country where firms
locate can support innovation outcomes
2. The difference between the host country where firms locate
and their home country has both benefits and costs in affect-
ing innovation outcomes
3. Location diversity has both advantages and disadvantages;
its impacts on innovation outcomes are inconsistent
4. Both non-equity and equity entry mode in internationaliza-
tion can increase firms’ innovation outcomes
5. INVs that internationalize early have learning advantages
to absorb and create knowledge, whereas discussion of entry
speed is still lacking
Post-internationalization 1. Within MNE’s internal networks, excessive control from
the parent firm can hinder subsidiaries’ innovation activi-
ties
2. Overdependence on knowledge from MNE’s external
network can decrease internal R&D investments
1. Within MNEs’ internal networks, appropriate hierarchical
governance and social relationships can help knowledge
transfer and increase innovation outcomes
2. Within MNEs’ external networks, the type of collaboration
partners and the relationships have great impacts on MNEs’
innovation outcomes
3. Within subsidiaries’ dual networks, the impacts of dual
embeddedness on their innovation outcomes are mixed and
underdeveloped
Contingency: External country/region factor Institutional environments and institutional distances have important implications for the costs of knowledge transac-
tion and the difficulty for knowledge combination, which can further improve or hamper firms’ innovation during their
internationalization process
Contingency: Firm internal factor Firm capabilities, human resources, experience, and size can influence them to acquire, absorb, and apply knowledge to
realize innovation in their internationalization process
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Innovation throughinternationalization: Asystematic review…
Funding Open Access funding enabled and organized by CAUL and its Member Institutions We thank
for the insightful comments from JiaTao Li on the early version of the paper.We also thank for the finan-
cial support from the National Natural Science Foundation of China (NSFC, grant number 72072160,
71802032, 71672176).
Declarations
We declare that we have no conflicts of interest. We have followed ethical responsibilities. All authors
contributed equally to the work.
Open Access This article is licensed under a Creative Commons Attribution 4.0 International License,
which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as
you give appropriate credit to the original author(s) and the source, provide a link to the Creative Com-
mons licence, and indicate if changes were made. The images or other third party material in this article
are included in the article’s Creative Commons licence, unless indicated otherwise in a credit line to the
material. If material is not included in the article’s Creative Commons licence and your intended use is
not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission
directly from the copyright holder. To view a copy of this licence, visit http:// creat iveco mmons. org/ licen
ses/ by/4. 0/.
Table 7 A summary of directions for future research
Future themes Directions for future research
Internationalization entry and innovation 1. Temporal behaviors (e.g., speed and rhythm) of interna-
tional expansion in innovation
2. The impact of entry order on innovation by considering
time and space aspects of internationalization
3. Configurational approach to viewing the relationship
between location diversity and innovation
MNEs’ network
and innovation
1. Benefits and costs of external network embeddedness
when considering innovation
2. The static and dynamic structure of MNEs’ external
networks and innovations
3. The impacts of subsidiaries’ dual embeddedness on
innovation
Institutional impact on MNE’s innovation 1. The coevolution between MNEs and local institutional
environments and innovations
2. De-globalization and innovation
3. The multilayers and multi-dimensions of institutions and
innovations
The relationship in the digitalization age 1. Digital internationalization and innovation
2. Digitalization can help restructure MNEs’ international
networks, thus affecting innovation
3. Digital-related capabilities and MNEs’ innovation
DMNEs’ and EMNEs’ innovations 1. Revise traditional IB theories that emerged from DMNE
experience to understand EMNEs’ innovation
2. Compare DMNEs and EMNEs’ home government influ-
ences on innovation
3. Compare DMNEs and EMNEs’ distinctive ownership
advantages to achieve innovation
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Innovation throughinternationalization: Asystematic review…
Jian Du (PhD, Zhejiang University) is an associate professor at the School of Management, Zhejiang
University. Her research interests include international business strategy and innovation management.
Over the last five years, she has conducted in-depth research on Chinese multinational firms, such as Hua-
wei and Geely, focusing on their learning to catch-up in the process of internationalization and outward
foreign direct investment of Chinese firms. She has published in peer-reviewed journals including Journal
of World Business, Asia Pacific Journal of Management, International Business Review, Management
and Organization Review, and International Journal of Technology Management.
Shan Zhu (Bachelor, Wuhan University of Technology) is a PhD candidate at the School of Manage-
ment, Zhejiang University. She has been working in international business strategy and technology inno-
vation management, focusing on how firms’ foreign expansion influences their innovation performance.
She is a student member of the National Institute of Innovation Management (NIIM) at Zhejiang Uni-
versity. She has been an attendee in the 81st Annual Meeting of the Academy of Management (online).
Recently, her research interest has been the impact of de-globalization on MNC’s innovation behaviors
and outcomes.
Wen Helena Li (PhD, Zhejiang University) is a senior lecturer at UTS Business School at the University
of Technology Sydney, Australia. Her research centers on international business and strategy, especially
on how firms’ experiential learning, top managers, and institutions influence firms’ strategic decision-
making and performance, including internationalization, innovation, and other nonmarket strategies such
as philanthropy and environmental sustainability. Her work mostly builds on behavioral perspectives and
some other cross-disciplinary perspectives (e.g., political economy, economic geography). She has pub-
lished in various journals, such as Journal of Product Innovation Management, International Business
Review, Journal of International Management, Asia Pacific Journal of Management and Management
and Organization Review.
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