The relationship between innovation capabilities and export propensity in the UK SMEs: Firm-level evidence based on human capital theory

Abstract

Exporting is one of the most important internationalisation strategies by which firms may expand their operations globally, and therefore gain more opportunities and achieve better performance. In a global market, export activities are vital for SMEs in terms of introducing their products and services to the market. Furthermore, innovation is also one of the critical complementary factors of firms' strategies. Therefore, this paper examines the relationship between innovation capabilities and export propensity. The purpose of this research is threefold: first, to investigate the role of innovation capabilities (R&D) on the UK small and medium-sized enterprises (SMEs) export propensity; second, to investigate the mediating role of innovation types on the SMEs' export behaviour; and third, to examine the moderating role of the type of training under the light of human capital theory. The Longitudinal Small Business Survey, 2015-2020 (UKLSBS) dataset, which provides a wide range of reliable data on Small and Medium Business (SME) performance and associated factors, was used for this study. The developed hypotheses are analysed by SPSS PROCESS v4.0 developed by Hayes (2018). Our findings show that product/service innovation has a mediating impact on the relationship between innovation capabilities and export propensity while service and process innovation have no significant mediating impact on this relationship. In addition, our findings show that the degree of novelty of innovation does not have a mediating effect. On the other hand, findings reveal that financial management skills, leadership and management skills, IT skills, and teamworking skills have a moderating role in the created model. Only one moderator variable which is technical/practical or job-specific skills has no significant impact on the relationship between R&D and export propensity. The outcomes of this research have several important implications for policymakers as well as managers and owners of the organisations. The empirical estimation of this study illustrates that education and training for employees have critical importance on firm export propensity in the UK. This shows that policymakers and firms' managers, involved in promoting firm export, should give more attention to training for their employees. In addition, the results show that dealing with combined types of innovation rather than conducting an innovation type alone has a more positive impact on the export propensity. For this reason, policymakers may help increase the export propensity level to a higher level by encouraging the companies in this regard.