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The study this chapter reports focuses on how network theory contributes to the understanding of the internationalization process of SMEs and measures the effect of network capability on performance in international trade and has three research objectives.

The first objective of the study relates to providing new insights into the international market development activities through the application of a network perspective. The chapter reviews the international business literature to ascertain the development of thought, the research gaps, and the shortcomings. This review shows that the network perspective is a useful and popular theoretical domain that researchers can use to understand international activities, particularly of small, high technology, resource-constrained firms.

The second research objective is to gain a deeper understanding of network capability. This chapter presents a model for the impact of network capability on international performance by building on the emerging literature on the dynamic capabilities view of the firm. The model conceptualizes network capability in terms of network characteristics, network operation, and network resources. Network characteristics comprise strong and weak ties (operationalized as foreign-market entry modes), relational capability, and the level of trust between partners. Network operation focuses on network initiation, network coordination, and network learning capabilities. Network resources comprise network human-capital resources, synergy-sensitive resources (resource combinations within the network), and information sharing within the network.

The third research objective is to determine the impact of networking capability on the international performance of SMEs. The study analyzes 11 hypotheses through structural equations modeling using LISREL. The hypotheses relate to strong and weak ties, the relative strength of strong ties over weak ties, and each of the eight remaining constructs of networking capability in the study. The research conducts a cross-sectional study by using a sample of SMEs drawn from the telecommunications industry in Ireland.

The study supports the hypothesis that strong ties are more influential on international performance than weak ties. Similarly, network coordination and human-capital resources have a positive and significant association with international performance. Strong ties, weak ties, trust, network initiation, synergy-sensitive resources, relational capability, network learning, and information sharing do not have a significant association with international performance. The results of this study are strong (R2=0.63 for performance as the outcome) and provide a number of interesting insights into the relations between collaboration or networking capability and performance.

This study provides managers and policy makers with an improved understanding of the contingent effects of networks to highlight situations where networks might have limited, zero, or even negative effects on business outcomes. The study cautions against the tendency to interpret networks as universally beneficial to business development and performance outcomes.

Purpose – The main aim of this chapter is to analyse the implications of innovation and, directly and indirectly, of cooperation on the internationalisation of knowledge-intensive business services (KIBS). Specifically, we analyse the potential impact of innovation capability on the propensity of KIBS to internationalise. We also look at whether cooperation has any influence on the international growth of these firms or on their innovation results.

Methodology/approach – This is an empirical research. Empirical analyses are based on information provided by the Spanish Technological Innovation Panel data for the period 2003–2005. Tobit and probit models are estimated to test our hypotheses.

Findings – The empirical findings support all our theoretical hypotheses. A positive relationship between cooperation, innovation and internationalisation of KIBS is also found. Thus, the results confirm the relevance of innovation for internationalisation. KIBS that establish collaborative relationships find access to international markets easier and improve their innovation capability. In these terms, cooperation is found to be directly and indirectly related with internationalisation in KIBS.

Originality/value of paper – The services sector is the most important sector in Spain and Europe nowadays, and it is the sector that has experienced the fastest growth in recent years. However, the research efforts it has received have not been commensurate with its size and role in international commerce. In general, the literature has paid scant attention to the relationships between innovation and internationalisation in services sectors, and more specifically, among KIBS. This chapter sheds light on this topic.