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Przemysław Spiechowski

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eBook based on printed edition from 2014 r., (1st ed.)

ISBN 978-83-01-19035-4

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Introduction

Common activity of enterprises in international markets gives rise to the need of finding new methods of competing. In February 2007, at the Consumer Analyst Group of New York, the representatives of Procter & Gamble management, in reply to the question on how they can maintain company’s growth against the increasing expenses of competition, provided a three-word answer: “Innovation, innovation and innovation” [Holtzman 2008, p. 1044].

The issue of innovations is the subject of numerous scientific discussions that have continued for many years. The person considered to be the author of the innovation theory is Schumpeter [1942], who defined it as a creative destruction aimed at streamlining the current state of affairs.

The most frequently cited definition for the notion of innovation was developed by the Organization for Economic Cooperation and Development (OECD). It distinguishes:

• product innovation – new or significantly improved goods or services, including technical specifications, components and materials, software, user-friendliness or other functional characteristics;

• process innovation – new, significantly improved production or product delivery methods, including techniques, tools and/or software;

• marketing innovation – new marketing methods involving significant changes in product design, packaging, distribution, promotion or pricing;

• organizational innovation – new organizational methods in business practices, involving a modification of workplace or external relations [OECD, Eurostat 2005, pp. 48-52].

Analyzing the problem of innovation one may find some common features that emphasize the creation of a significant new value for the client and the company through creative modification of a single or several elements in the business system. Innovation is about new value, not new products, they may occur on any level of enterprise’s activity, and they also require the evaluation of all existing levels of company’s activity [Sawhney, Wolcott, Arroniz 2006, pp. 76-77].

It is commonly believed that innovations serve an important role in company’s activity. The concept that describes the changes occurring as a result of innovation in an enterprise was developed by M. Terziovski [2002, pp. 5-14]. According to that, firms accomplish innovations by introducing constant modifications in strategies of activity, e.g. using new organizational structures, employee procedures, methods of workforce management or creating a working environment conducive to the creation of innovation.

It should be noted that the fact of an existing possibility of creating innovations does not mean their actual coming into being. In practice, in order to perform effective innovation it is necessary to adjust both the inner as well as the outer factors influencing the enterprise’s operation, since opportunities related to local demand and competitive pressure will not bring results if the company has no appropriate competences to respond to them (e.g. such as activity in the sphere of research and development).

The significance of the role that is assigned to the issue of innovation is confirmed by numerous scientific research studies that indicate the existence of a link between innovativeness and company performance. The papers by B. Hall and J. Mairesse [1995, pp. 263–293] as well as J.D. Adams and A.B. Jaffe [1996, pp. 700–721] corroborate the positive impact of innovativeness on the results achieved by enterprises, while others (A. Link [1981], M. Sassenou [1988]) assert that despite a substantial increase in knowledge, the company’s results do not improve.

In terms of the dynamically progressing process of globalization it seems that the relationship between innovation and company performance should be examined in the context of entities participating in international expansion. Internationalization is a common phenomenon that exerts considerable influence on the forming of the position of companies. The process of internationalization may also influence the creation of innovations by enterprises, and at the same time the achieved results.

Internationalization is defined by J. Rymarczyk [2004, p. 19] as each kind of business activity undertaken by enterprises abroad. But a definition worded in such a manner does not include all forms of activity of the companies participating in the process of internationalization (e.g. imports). Therefore, it is worth using the conceptual framework created by M. Gorynia [2007, pp. 35-36], which distinguishes active and passive internationalization. Active internationalization is understood as the international expansion of the firm in various possible forms. Passive internationalization means entering into various economic relationships with foreign partners without expanding business activities outside the country of location of the given firm. The paper utilizes an approach encompassing both aspects of activity.

The results of scientific research to date carried out within the scope of the internationalization process include various models of enterprise internationalization. Taking into account the characteristic features of the individual models, one may divide them into five groups in chronological order. These are: the Uppsala model, innovation models, eclectic paradigm, strategic approach and network models. Each of the distinguished groups of models emphasize some selected aspects of the internationalization process. In order to properly identify the manner of operation of enterprises in foreign markets, it is necessary to conduct an analysis based on the simultaneous use of information presented by each of the discussed groups of models.

The issues highlighted in the mentioned theoretical formulations (models) of the internationalization process play an important role in the manner enterprises operate. One may suppose that international expansion of enterprises also influences innovations, and therefore, the market results of companies. This is indicated by the sparse research conducted to date [Kafouros et al. 2007, p. 72], which demonstrates that the effectiveness of innovation activities is determined by the internationalization of the enterprise.

In the Author’s view, internationalization, innovations and company performance influence each other. Internationalization may lead to the achievement of advantageous market results by the enterprise. Improved results of company’s activity may be a stimulus for carrying out international expansion, as well as for allocating more funds to research and development, thereby leading to the creation of innovations. Innovations may have an impact on the achievement of beneficial results by enterprises and determine the process of company internationalization. International expansion also affects the creation of innovations. Examples of the relations between innovation, internationalization and results achieved by enterprises may be plentiful, depending on the type of companies, the market and various market factors. The relation between the process of international expansion of an enterprise, innovation and performance is shown in Figure 1.

Despite many literature publications in the field of economics and management, concerning internationalization and innovations, there is a small number of publications [e.g. Buckley, 2012] describing in a comprehensive manner the influence of internationalization on the innovation activities of enterprises. Likewise, there is no answer to the question on how innovations created in the process of internationalization influence the results of companies.

Due to the identification of a substantial research gap within the subject matter of innovations in the process of internationalization, this book undertakes an attempt at determining the manner in which internationalization affects the process of creating innovations by enterprises and ascertaining their impact on results. It is assumed in the paper that in the face of increased international competition the achievement of advantageous market results is determined by the effective creation of innovations by enterprises. In view of the above, the process of internationalization may be treated as a source of opportunities for the creation of innovations as well as a stimulus inducing enterprises to create innovative solutions. An attempt is made at investigating the interdependence between innovations created in the process of internationalization and company’s results.

Figure 1. The interrelation between internationalization, innovation and company performance
Source: Own elaboration

The existing relations between the crucial research problems, concerning the notions of: innovations, internationalization and company performance, are shown in Figure 2.

Figure 2. Conceptual outline
Source: Own elaboration

Figure 2 indicates that internationalization has an impact on the creation of innovations by companies. It is so because of the characteristics of the internationalization process, which creates new opportunities for creating innovative solutions by the enterprise. In addition, taking into account the various needs of the buyers identified both in the local and international markets, companies are forced to look for new methods of competing in order to satisfy their expectations. Innovations are therefore created in response to the expectations of buyers, owing to the new competences that the company has obtained in the process of internationalization. Given the fact that innovations constitute a new value for the enterprise, they lead towards the achievement of advantageous company results.

The aim of the paper is to determine the role of innovations created in the process of internationalization for company performance.

In order to realize the main objective, a number of research tasks were established. These include:

1. Specification of the terminology associated with the notion of innovations;

2. Identification of the process of creating innovations by enterprises;

3. Determination of the impact of innovations on the results obtained by enterprises;

4. Examination of the role of internationalization in the process of creating innovations by enterprises;

5. Determination of the occurrence of a difference in market results obtained by enterprises that create innovations in the process of internationalization, and those that don’t create innovations.

Enterprises involved in the process of internationalization have numerous chances for development, which are the result of the resources available in foreign markets, relations created with other entities in the process of internationalization and forms of company activity in the international setting. By expanding abroad, enterprises may develop the resources that were unattainable in the local market. In addition, through contacts with other entities, companies can gain better access to new outlets. What is crucial in this regard, is the form of expansion that determines the scope of benefits to be obtained from internationalization. These factors influence the creation of innovations by enterprises. It appears, then, that with the achievement of increasingly higher stages of development in the process of international expansion, the company has greater possibilities for creating innovations.

The described interrelations persuaded the Author to make an attempt at verifying the following research hypothesis (hypothesis 1): the higher the degree of company’s involvement in the internationalization process, the larger the number of created innovations. The higher degree of involvement is understood as an increase in the company’s engagement in asset allocation, the commencement of activities in new foreign markets and the development of relations with foreign entities. The reflection of the involvement level in the internationalization process is the form of international expansion used by the enterprise, which determines the use of resources available in the surroundings, the level of activity in foreign markets and the ties built with foreign entities.

Due to high costs, risk, time, etc., the subject literature presents diverse opinions about the beneficial impact of innovations on company results. However, in view of the fact that innovations create new, unprecedented values, influence company’s effectiveness, create market demand, allow the creation of new products and services, enable to meet new needs of consumers or improve the efficacy of satisfying them [Sosnowska 2002, p. 10], it is considered appropriate to make an attempt at verifying the following hypothesis (hypothesis 2): innovations created in the process of internationalization in a conscious and deliberate manner have a positive influence on company performance.

In order to perform the measurement of the results of companies that create innovations in the process of internationalization, it is necessary to include both the financial and non-financial performance indicators. According to K. Fonfara [2007, pp. 3-4], one may use the formula that includes the analysis of total profit, return on investment (ROI), volume of sales and market share. By virtue of impediments associated with the comparison of firms of different sizes and operating in various markets or representing different industries, a subjective method of evaluating enterprise activity compared to their immediate competitors is used. The application of such a method of evaluation allows for an analysis of the results of various types of companies. The results obtained by companies will be compared with reference to two groups of enterprises involved in the process of internationalization. The first creates innovations in the process of internationalization in a conscious and intentional manner in order to achieve market results better than those of the competitors. Whereas the second group does not create innovations knowingly, participating in the internationalization process, since it has no adequate capabilities (e.g. resources) to that end or does not recognize the benefits arising from creating innovations.

Both domestic and foreign literature was utilized in the paper. An important supplement to the theoretical thread of the paper is empirical research. The aim of this was to determine the significance of innovations created in the process of internationalization for the company results, as well as the verification of research hypotheses. The discussion is thus theoretical-empirical in nature.

As part of the primary research a survey was carried out addressed to 6000 enterprises located in the territory of Poland, irrespective of the industry or country of origin of the owner. The substantive scope of the survey comprised issues related to the course of the internationalization process, the kinds of innovations made and the methods of their creation as well as the results achieved by enterprises. The structure of the sample allowed to conduct a detailed analysis of the influence of innovations created in the process of internationalization on company performance.

The structure of the paper reflects the adopted research concept. It consists of three chapters preceded by an introduction and summed up with a conclusion. The first two chapters are theoretical. The third and last chapter of the paper is empirical. The first chapter is related to the problem of innovation. The origin and essence of the notion of innovation is discussed and individual types of innovations are distinguished, using various classification criteria. Furthermore, a method of creating innovations by enterprises is determined, presenting the Author’s model representation of the innovation creation process. It proved substantial to determine the role that innovations play in the market activity of companies. In particular their influence on the results achieved by enterprises is shown.

Chapter two refers to innovations created in the process of internationalization. Therefore, a detailed characterization of the internationalization process through the analysis of various internationalization models is made, which allows for the identification of the key aspects of the internationalization of an enterprise. The sources of innovation to be found in the process of internationalization are identified as well as the role that they play in the creation of innovative solutions. Additionally, the manner in which internationalization affects the process of creating innovations is determined by presenting a model representation elaborated by the Author.

In the third chapter an attempt is made at an empirical verification of the hypotheses adopted within the theoretical deliberations.

The final part contains the conclusions of the conducted study.