The paper examines the interrelationships among the domestic institutional environment for entrepreneurship, a firm's innovation capability, and an SME's decision to grow using an internationalization or innovation-based strategy. The effects of both the external institutional environment and the internal dynamic capabilities on the firm's subsequent performance are evaluated. Cross-sectional cross-industry data from 188 Russian SMEs were collected in order to address these issues. The results suggest that the initial decision of an SME to pursue an internationalization strategy is influenced by conditions in the cognitive institutional environment and the SME's internal ability to innovate. The initial decision to pursue innovation-based growth, however, is affected only by a firm's internal factors. However, the growth outcome depends on the normative institutional environment, in other words on favorable societal attitudes to the phenomenon of international entrepreneurship. The paper demonstrates the complexity of institution-based and resource-based factors that affect SME growth in emerging economies, and provides recommendations concerning strategic policy objectives.
- Emerging economy
- Innovation capability
- Institutional environment for entrepreneurship
- International entrepreneurship