How clear communication and business networks drive innovation in international SMEs

What is it about?

When small and medium-sized enterprises (SMEs) expand into foreign markets, they face unfamiliar regulations, cultures, and competitive pressures. To succeed, they often need to adapt how they create, deliver, and capture value—a process known as business model innovation. In this study of 187 internationally operating Finnish SMEs, we examined how managers make sense of complex international environments ("sensemaking") and how their insights translate into business model innovation. We compared two types of sensemaking: cultural sensemaking (relying on cultural awareness and background schemas to interpret interactions) and communication-oriented sensemaking (actively discussing, sharing, and articulating interpretations with colleagues and external partners). We found that cultural awareness alone does not lead to business model innovation. Instead, active, communication-oriented sensemaking drives business model innovation, and this effect works largely by strengthening the firm's network capability—its ability to build, manage, and leverage relationships with external business partners.

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Photo by The 77 Human Needs System on Unsplash

Photo by The 77 Human Needs System on Unsplash

Why is it important?

Previous research has often treated a manager's mindset and a company's external networking as separate, parallel drivers of international growth. Our study is the first to empirically show a sequential "missing link" in internationalizing SMEs: individual manager insights only translate into firm-level business model innovation when channeled through strong inter-organizational network capabilities. For SME managers and international entrepreneurs, this offers a clear, actionable takeaway: simply studying or understanding foreign cultural differences is not enough to renew your business model abroad. To innovate and stay competitive internationally, leaders must prioritize open dialogue and active communication—both inside their teams and externally with foreign partners—to minimize misunderstandings, align expectations, and pool partner resources effectively.