As the global economy of the twenty-first century is in continuous
evolution,characterized by rapid change and intense competition, a country’s capacity to
prosper is becoming more and more linked to the performance of its small and
medium-sized businesses (SMEs) in foreign markets.SMEs are essential drivers of
growth, innovation, and employment and are frequently praised as the foundation of
national economies.Still,to achieve a sustainable export performance,they do get
influenced by multiple interlinked aspects where innovation plays a crucial role.Within
any nation,there is always a necessity to demonstrate steadiness in the international
market and the truth is that burden is actually felt by Small and Medium
Enterprises,specifically those functioning within developing economies where there are
major obstacles due to resource limitations and market uncertainties.This is simply
explained by the fact that the capacity of SMEs to innovate and strongly compete in the
foreign markets is mainly structured by the particular economic and institutional
environment in which they function. When we compare to SMEs in developed nations,we
often find that in order to succeed, SMEs in developing markets frequently have to meet
with unfriendly institutional contexts that require even more innovation. At the same
time, the growing interdependence of markets emphasizes how crucial export activity is
as an appraisal of SMEs’ competitiveness. Firms can develop new skills and access new
resources by expanding internationally. According to the open innovation paradigm,
firms are more likely to create these new skills if they embrace knowledge flows that
extend beyond their borders. Because they can increase their productivity by accessing
knowledge-rich environments, utilizing external inputs can result in better performance.
Moreover, the self-selection theory of internationalization highlights that a company’s
exporting activities are motivated by its natural productivity. A fascinating line of inquiry
is provided by the combination of self-selection and open innovation.
Understanding how SMEs can effectively leverage innovation to enhance their export
capabilities is of remarkable significance,and it’s on which we based the route of our
analysis.The success of SMEs in international markets is contingent on effective
innovation strategies,This paper examines how foreign technology licensing and research
and development (R&D) investments, two crucial innovation techniques, affect SMEs’
export performance. While R&D expenditures encourage internal knowledge generation
and innovation, foreign technology licensing gives firms access to outside expertise and
new technologies. This research addresses the intricate relationship between innovation
and internationalization, with a particular focus on the contrasting experiences of SMEs
in Egypt and Germany while focusing on innovation as a mediation factor.The study
looks at how these tactics, taken separately and together, help SMEs succeed in globalmarketplaces.This paper’s comparative design, which examines the experiences of SMEs
in Egypt and Germany, is one of its main features as past papers in literature may have
focused on the export performance but it was always tackled within one country or one
region which may be beneficial but doesn’t fully indulge in the difference between
countries that if smartly analysed could lead to countries getting inspired by others and
ends having common benefits that reaches better export performance with steadier
conditions.Germany is a prime example of a developed economy with strong institutions
and undeniable technological skills. It is a highly industrialized and innovative country.
Egypt, on the other hand, is an example of a growing economy going through structural
change, with few opportunities and limitations that affect the internationalization of
SMEs. A deeper comprehension of the elements that support or restrict SME export
success in various economic environments is made possible by this comparative lens.
There are many benefits to using this method to comprehend the nuances of innovation
and export performance. The study illustrates how macro-level factors influence the
efficacy of firm-level innovation strategies by analyzing two nations with different levels
of institutional background and economic development.Innovation strategies certainly
varies in their types and intensities within countries which is a very interesting aspect to
be deeply analysed in this paper.
To integrate the comparative analysis,we adopted the structural equation model
(SEM).Analysing the complex relationships between the variables used and to be able to
estimate simultaneously multiple relationships are one of the key features that are
necessary in our work and what lead to the use of this specific model.This paper overall
bases its analysis on the fact of capturing the full extent of international market
engagement,which is the most relevant in a comparative context between 2 countries
from a different development level.Innovation is framed as a latent variable represented
by the introduction of new products and the adoption of new processes. This approach
acknowledges the multidimensional nature of innovation, encompassing both creative
and operational aspects.Additionaly, Foreign technology licensing and R&D investment
are examined as key drivers of innovation.
Ultimately,this paper wants to focus on innovation as a mediator while focusing on the
export performance as the variable of interest while examining the effect of foreign
technology and R&D in the first place on innovation.All within the comparative approach
between Egypt and Germany. It can all be answered through these two upcoming
questions: “How do foreign technology licensing and R&D investment influence SMEinnovation and export performance in Egypt and Germany?” and “How do these
relationships fluctuate between these two different economic conditions?.