Effect of Internal Capabilities on Internationalisation of the Small Information and Communication Technology Firms

The aim of the paper is to study the effects of a firm’s distinctive capabilities on internationalisation strategy and performance. The knowledge-based view of the firm is a dynamised extension to a well-known resource-based view of the firm, and it is seen as a useful approach in our study. In changing and unpredictable environments, in which small knowledge-intensive information and communication technology firms operate, knowledgebased resources are seen to contribute most to performance. Based on this argument, we explore the internationalisation process of small knowledge-intensive firms from the knowledge-based perspective. Internal capabilities are operationalised by marketing, technical, organisational and financial capabilities. We also study the effect of international experience (i.e. knowledge about foreign markets and operations) as it can also be seen as a part of internal capabilities. The empirical investigation uses a sample of 124 Finnish small and medium-sized firms providing value-added services in information and communication technology sector. 71 (58 percent) of these firms operate internationally. International experience is confirmed to be a significant determinant of internationalisation strategy and performance. In addition, financial capabilities measured by excellent investment expertise, connections with venture capitalists and good financial management prove to be significant. Implications and directions for future research are discussed.