INNOVATION-INTERNATIONALISATION LOCI IN MARKET TRANSITION OF INFORMATION AND TELECOMUNICATIONS FIRMS

The purpose of this study is to analyse differences in a small open transitional economy’s loci on innovation and internationalisation pace. Specifically, the effect of absorptive capacity, product and service innovation, and institutional support on internationalisation pace differences between firms founded in the command and capitalist market systems. Geographical setting of this study is the Republic of Croatia, which underwent a transition from a command to a capitalist market system in the early 1990s. Its information and telecommunications firms were pillars of innovation. The survey on Croatian information and telecommunications’ firms’ innovation and internationalisation was done between March and May 2014. This paper analysed 82 single firm responses based on firms’: internationalisation pace, amount of product and service innovation, absorptive capacity and institutional support in finding international markets. Results show that greater service innovation and smaller institutional support lead to faster internationalisation for all firms in the sample. When distinguishing between firms founded in the command system (“incumbents”) and those founded in the capitalist system (“young firms”), neither the amount of absorptive capacity, their product nor service innovation statistically significantly predict incumbents’ internationalisation pace. Conversely, young firms’ internationalisation pace was: (a) positively influenced by service innovation and absorptive capacity, and (b) negatively by product innovation and institutional support. Hence, absorptive capacity and service innovation are more important for internationalisation pace of firms founded in the capitalist system, which is consistent with the globally integrated growth of the information and telecommunications industry. This paper further discusses theoretical and practical implications of the identified findings with respect to the small open transitional economy.