The study concludes that no significant relationship between innovation and internationalization to emerging markets exists. Fashion companies will therefore not see major differences in their innovative capabilities as a result of entering an emerging market. However, it is concluded that innovation significantly influences firm performance in fashion companies, which means that a higher commitment to innovational activities will improve the firm performance. It was further found that fashion companies that have a higher turnover tend to invest more of their sales in innovation, however, a high investment intensity relative to sales will decrease the firm performance. It is therefore necessary to regularly monitor the investment intensity to ensure that the commitment to innovation positively influences firm performance.
Furthermore, internationalization to emerging markets does not significantly impact firm performance. This means that although fashion companies may influence their firm performance by entering emerging markets, no significant change will occur. This relationship may also be explained by the lack of innovational impact from entering emerging markets given that firm performance is highly influenced by innovational activities.
Internationalization to emerging markets does, however, significantly reduce the positive influence of innovation on firm performance. This means that fashion companies need to pay close attention to how innovation is compromised by entering an emerging market.
The lack of a significant relationship between innovation and internationalization to emerging markets is likely due to an advantage-seeking internationalization pattern in fashion companies. Emerging markets have lower innovational performance compared to developed markets, and fashion companies are therefore less likely to offshore innovational activities to emerging markets, which limits the absorptive capabilities of the firm. Furthermore, fashion companies should be committed to innovation and present high absorptive capabilities prior to entering a new market, to see a positive impact from internationalization. Therefore, internationalization in and of itself does not improve innovative capabilities. The location choice and the departments that are present in that market, in combination with high innovational commitment and absorptive capabilities are important determinators.
Fashion companies that incorporate innovation into their core values or the brand identity will encourage an innovative mindset amongst employees which increases the innovative capabilities of the firm and ensures better integration of innovation into company processes. The positive influence from innovation is further strengthened if fashion companies find a reliable method for transferring and storing knowledge within the firm, and encourage knowledge-seeking behavior, which includes seeking knowledge outside of the firm.
Fashion companies have the opportunity of increasing efficiency within the firm by creating a
communicative link between retail and the design team, as retail is an important knowledge source given its direct touch point with consumers. The digitization of the fashion industry further introduces new
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possibilities for efficiency and pushes the boundaries of innovation. Digitization is therefore increasingly becoming an integral part of the industry and is thus an important integration to the business model.
Fashion companies are recommended to monitor investment levels, but in addition to finding the right balance of investment in innovation, fashion companies must further find the right balance of the allocation of investment in different innovative areas. Fashion companies should have a very high focus on core products and resources and minimal focus on transformational innovation.
The negative impact from internationalization to emerging markets on the relationship between innovation and firm performance is likely due to a higher risk of outward knowledge spillover when operating in emerging markets. The higher risk can be combatted by creating internal complexities and interconnectivity between resources. Increased organizational complexity increases the inimitability of the resources but is at the cost of flexibility and adaptive capabilities, which are crucial skills when operating in turbulent industries and markets. Fashion companies should therefore prioritize reactive and adaptive capabilities and rely on external measures to reduce outward knowledge spillover. However, legal institutions in emerging markets have lower performance compared to advanced economies, which is why emerging markets present higher risks for outward knowledge spillover. Fashion companies should therefore pay higher attention to
institutional voids when entering and operating in emerging markets. It is therefore necessary for fashion companies to implement additional initiatives to protect IP and innovational activities when operating in emerging markets. Regular analyses and market assessments are, furthermore, recommended for timely reaction to market changes. However, fashion companies should avoid offshoring innovational activities to emerging markets, if possible, to minimize the negative impact on the relationship between innovation and firm performance.
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