Innovation Promotes Internationalization of Small and Medium-Sized Enterprises

In recent decades the internationalization of small and medium-sized enterprises (SMEs) has increased significantly, especially in manufacturing industries. Yet in contrast to large, multinational corporations, not much is known about the international activities of SMEs. Data on East German SMEs show that size and innovative capacity have a significant influence on a company's international involvement, as measured by exports and relocating production or other operations abroad. Furthermore, external factors also impact the international activities of SMEs. Particularly significant in this regard is a company's competitive situation and locational factors such as spatial proximity to research institutions and support from regional authorities and organizations. Regional policy aimed at increasing the presence of SMEs in international markets should therefore foster firms' innovative capabilities and support regional companies with good services and guidance programs.