This study aims to investigate how internationalization influences small and medium-sized enterprise (SME) performance and examine the mediating roles of digitalization and business model innovation (BMI) as absorptive pathways through which international exposure is transformed into competitive advantage.
The empirical analysis is based on survey data collected between June and November 2024 from 161 export-oriented SMEs in a developing economy. Partial least squares structural equation modeling (PLS-SEM) was used to test the hypotheses, complemented by PROCESS-based robustness checks.
The results highlight BMI’s absorptive function in facilitating knowledge transfer from internationalization and digitalization, thereby enhancing SME performance. Digitalization emerges as the strongest enabling channel, while BMI complements this role by reconfiguring value creation and capture mechanisms to transform international exposure into competitive advantage.
This study advances the long-debated I–P literature by demonstrating that internationalization enhances SME performance only through mediation by digitalization and BMI. By conceptualizing internationalization as a trigger whose value materializes via absorptive and transformative mechanisms, the study extends the resource-based view and the Uppsala model, offering new insights into SME competitiveness in the digital era.
