Examining the effect of informal and foreign competitors on innovation and export: evidence from service SMEs

Abstract

Threats from informal and foreign competitor groups have been particular importance for local emerging economy firms’ strategies. In this line, previous studies have examined the link between competitor groups and emerging economy firm success. Extant studies have mostly explored firms in the manufacturing sectors and they have not investigated what the results mean for smaller firms. To extend prior research, this paper examines to what extent informal and foreign competition affect the innovation and export performance of service SMEs. In analyzing cross-sectional data across Eastern Europe and Central Asia countries, this research finds that informal and foreign competition increase service SMEs’ innovation performance and the informal competition has bigger effect than foreing competition. The findings further reveal that informal competition decreases service SMEs’ export performance whereas foreign competition raises service SMEs’ export performance. Overall, this research aims to extend the existing literature that explores the influence of competition on firms’ strategies and decisions.