Market-oriented business model for SMEs' disruptive innovations internationalization

Market orientation research

The studies of Kohli and Jaworski (1990) and Narver and Slater (1990) have contributed to considerable MO research, especially on how to investigate the relationships among knowledge development of customer needs, cross-sector knowledge and dissemination, strategic responsiveness and implications and impact on business performance. In this article, business performance represents the effects of how SMEs, by following the MO intelligence principles, can meet the needs of buyers in the international market.

Kohli and Jaworski (1990) MO perspective is founded in how business attitudes can be changed by developing market intelligence. Their discussion concerns how company-wide intelligence can develop based on the generation and dissemination of market information and organizational responsiveness to this information. Special attention is paid to how organizations collect information concerning customer needs, desires and demands, as well as how mediators (facilitators) and moderators (environmental circumstances) affect business performance (Liao et al., 2011). Forceful companies are assumed to integrate MO into the organization as an intelligent mindset. This implies that a company's responsiveness to collected market information regarding consumer needs reflects the company's tendency, flexibility and ability to act successfully based on what the market wants and requires (Kohli and Jaworski, 1990; Sundström et al., 2016a; Hyder, 2016).

Since market orientation is context-dependent, moderating external factors can greatly influence the MO performance relationship. Market turbulence, competitive or collaborative environment, legal conditions, and economic standing are examples of external contingencies directly affecting this relationship (Kohli and Jaworski, 1990, p. 14; Ahmadi and Sundström, 2017). Even if a company operates in accordance with the MO principles, factors outside the organization can directly affect the results of market initiatives conducted, which can have a special impact on companies with disruptive innovations.

Much research attention is directed to understanding the mediating factors that promote the development of market intelligence representing a company's innovation capability. Commonly mentioned mediating factors are learning capacity, management of human resources and implementation issues aimed to improve business performance (Liao et al., 2011). Narver and Slater (1990) have a long-term MO perspective, focusing on cultural aspects of an organization and how these help to create superior customer value. Companies manage interfunctional coordination of core activities to develop a consumer-oriented, innovative business culture. As customers commonly lack insight into what they really want, Slater and Narver (1998) suggest that firms need to develop a culture characterized by innovativeness that moves beyond purely customer-led wants. Instead of claiming to be market-driven, companies have to develop strategies to be market-driving (O'Cass and Ngo, 2007). Narver et al. (2004) criticize the intelligence perspective as representing an outside-in procedure focusing on customers' present needs, whereas their innovativeness and cultural-driven approach represents an inside-out process that builds up companies' own capabilities. They see innovative companies as those that “continuously create superior customer value by sharing the knowledge broadly throughout the organization and by acting in a coordinated manner” (Slater and Narver, 1998, p. 1003).

According to Christensen et al. (2015), market complexity demands good knowledge, learning capacity and targeted market strategies. Innovativeness-focused research especially pays attention to the need to acquire market knowledge and developing strategies to improve product development (Miller and Friesen, 1978). Whereas innovation commonly refers to new products, services, production processes, organizational structure or administrative systems (Hult et al., 2004), innovativeness symbolizes an organization's entrepreneurial capabilities and cultural orientation toward the market (Liao et al., 2011). Sundström et al. (2016a) noticed, however, that no obvious link between innovation and innovativeness exists. Companies can develop innovations driven by external expert demands without having developed the necessary internal capacity built on innovativeness. Urbano et al. (2019) argue that access to resources, appropriate organizational structure and strategies to ensure capacity building of employees through training influence firms' innovativeness. While focusing too much on innovation, companies can underestimate the importance of understanding customer needs and willingness to buy.

Innovativeness can be defined as an organizational ability to attain new thinking and openness to new ideas and how to implement learning capacity (Hult et al., 2004; Bose, 2016). Innovativeness influences developing knowledge of the market via market research, advertising and promotion (Miller and Friesen, 1978), which requires strategic planning, knowledge and openness to new organizational solutions and ideas (Hult et al., 2004; Urbano et al., 2019). According to Zehir et al. (2011), innovativeness could be seen as a systems-based, firm-wide orientation related to innovations. Far-seeing, innovative firms understand how to develop knowledge-based structures consisting of organization-wide shared beliefs that guide them strategically in actions (Zehir et al., 2011). Innovations and capacity to innovate have positive influence on SMEs internationalization and competitive performance (Urbano et al., 2019; Radicic and Djalilov, 2019). Bose (2016) specifies that innovation is important to safeguard SMEs against ever-increasing competition and customer demand. However, to be competitive, companies with disruptive innovations require innovativeness to streamline internationalization. We propose that market orientation of disruptive innovation requires developing knowledge of the specific conditions that apply to the international market.

The disruptive innovation market context

Recent disruptive innovation research often refers to the work of Christensen and Bower (1996) and Christensen et al.'s (2015) discussions and definitions. For instance Martinez-Vergara and Valls-Pasola (2020) address the multitude of studies directed at disruptive innovation; Rasool et al. (2018) discuss the complexity before it reaches the international market and, in particular, how potentials can be exploited when entering new markets and finding new customers. This research considers companies as generic regarding size, characteristics and how these attributes influence internationalization. Robertson and Luiz (2019) suggest that disruptive innovation has better opportunities for internationalization by realizing the specific characteristics of the market. Knowledge and adaptation to the market's industrial changes, new products and technologies are examples that create better conditions for successful disruption. Robertson and Luiz (2019) propose that networking and business models need a global vision to capture technological development, institutional variables and market needs. Accordingly, the development process requires internal capacity based on developing market-oriented knowledge in helping companies to meet the specific needs of the market.

Market orientation of disruptive innovation faces several challenges. Christensen et al. (1996, 2015) discuss the constraints that innovations encounter when customers do not even know the innovations exist. According to Yu and Hang (2010), the disruption of old technology occurs when the new product displaces the incumbent product in the mainstream market. One disruptive example is cannibalization, which happens when both the old and the new product are sold by the same company (Schmidt and Druehl, 2008). The new product, however, gradually replaces the old product.

To avoid risks related to organizational constraints and path-resource dependencies, market-leading companies choose to stick with incumbent mainstream technology and can be unable to meet future customer needs (Christensen and Bower, 1996). Generally, smaller and hungry entrepreneurial companies take the risk of penetrating new markets with disruptive innovations, which Christensen et al. (2015) see as “a process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses” (p. 46). Smaller firms have advantages over large firms in the case of nontechnological innovations as they have less bureaucracy and more flexibility to adopt and react to changes (Radicic and Djalilov, 2019). Their flexibility offers competitive advantages, but the lack of technological and financial resources and marketing expertise hampers innovation capacity and internationalization (Radicic and Djalilov, 2019). Robertson and Luiz (2019) suggest that the complexity of disruptive innovation to successfully internationalize requires business models closely linked to the needs of the international market that capture technological development and institutional issues. To succeed, internal capacity is needed along with knowledge of the market's needs. We propose that SMEs with disruptive innovation need the support of an MOBM that promotes internationalization.

Schmidt and Druehl (2008) discuss the terminology of high-end and low-end encroachment to describe the contextual feature of the innovation on the market. Encroachment means that the disruptive innovation takes sales away from the incumbent innovation, which implies that these are competing with each other to satisfy customer needs. They suggest that understanding the contextual conditions of the innovation market can help companies determine the impact of the innovation relative to the market. However, according to Yu and Hang (2010), this high-end and low-end customer market division does not necessarily mean that the disruptive innovation replaces the incumbent one. Whether the high-low discussions concern the initial disruptive innovation per se or its impact on the entire customer-chain production to end users is still unclear. We propose that the MOBM needs to take into account the entire customer chain to streamline international disruption.

Three dimensions of MO intelligence

MO as a concept is generic in that no specific consideration is given per se to which customer needs and conditions on international markets are to be met. According to Cadogan and Diamantopoulos (1995), structural and cultural variations in international markets can have moderating effects on MO.

The MOBM focuses on three dimensions of knowledge development areas mediating the possibilities of SMEs to adapt to the new circumstances of the international business contexts: structural conditions (laws, rules, procedures), cultural circumstances (norms and values) and sustainability requirements (economic, social, and environmental conditions).

Examples of structural organizational conditions are the constraints companies experience in situations of change and uncertainty (DiMaggio and Powell, 1991). According to institutional research (DiMaggio and Powell, 1991), central actors such as the state, the professions or other dominant agents develop formal rules the companies need to comply with in internationalization. However, the degree of institutionalization varies, and for SMEs it is important to know laws and rules that prevail in the target market and the buying chain and how to follow them.

Cultural circumstances are central topics addressed in international market literature (Czinkota and Ronkainen, 2003). Hyder and Abraha (2008) argue that cultural dissimilarities may lead to differences in a firm's aims, management, operation and strategy implementation. Liao et al. (2011) noticed that cultures have strong effects on people's attitudes and ability to manage stakeholder relationships. Even if Czinkota and Ronkainen (2003) claim that the world is becoming homogenous, with a limited number of products with universal brand recognition, we argue that disruptive innovations are far from universal, making cultural dimensions a central issue in understanding international market conditions. Developing knowledge of different cultural issues and their impact on strategy formulation are important tasks in the SMEs' internationalization process (Bose 2016; Radicic and Djalilov, 2019).

The third dimension of knowledge concerns the necessity for SMEs to implement and integrate corporate social responsibility (CSR) and sustainability requirements in core activities to comply with market demands. Companies in B2B relationships are more or less forced to comply with sustainability standards and requirements imposed on them by international trade. This is particularly important when SMEs encounter business situations where they have to comply with sustainability requirements set by large purchasers as part of supply chains. Studies show that smaller companies have to rely on larger companies' business rules and struggle to survive by following codes of conduct (Sundström et al., 2016b). Suppliers are selected by buyers based on sustainability criteria, which means that business agreements depend on companies that can comply with the stated requirements (Ciliberti et al., 2008). CSR integration offers competitive advantages for SME suppliers meeting sustainability terms, while companies without codes of conduct risk losing corporate confidence and sending business deals to others. We propose that knowledge of structural, cultural and sustainability market variations can support firms with disruptive innovations to be successful on international markets.

Selection of test SMEs

The SMEs were selected with support of Triple Steelix 2.0, a cluster organization comprising about 700 steel-producing companies and manufacturers of mechanical equipment for metal forming and industrial IT, among other organizations, in the Dalarna and Gävleborg regions of Sweden. Triple Steelix works closely with the SMEs and has a clear conception of their operations, innovations and innovativeness. The companies were chosen based on the following criteria:

1. Prior development of disruptive innovation with market-leading potential

2. Potential for international growth

3. Need and desire to gain international market knowledge and intelligence

4. Acceptance of mutual exchanges between academic and business development, where the SME works toward its own development through action research.

5. Inclusion in an active research project, where the companies accept that researchers participate, collect and use data as part of research activities.

Six SMEs were selected, but two of them had to quit the project due to workload and need for confidentiality. Four companies continued and followed the entire one-year project. Company A had developed a disruptive innovation in advanced sheet metal forming, company B in renewable energy systems, company C in measurement systems and radar technology and company D in metallurgical processes based on plasma technology. All companies understood that they needed overall market orientation knowledge of the customer chain to learn how their product could have a disruptive impact on their international market.

Triple Steelix evaluated and reported on the outcome to share experiences in their network. Besides the project group and Triple Steelix, an expert group followed, evaluated and reported on the implementation of the project. This collaboration contributed to both theoretical and practical knowledge that enriches all parties but also promoted regional business development in a broader sense.

Qualitative data were collected continuously throughout the project by conducting action research. This approach was suitable to handle a high level of interaction and complex data for theory development and conducting case studies (Eisenhardt, 1989; Yin, 2014). Furthermore, to manage parallel and interactive processes consisting of practical problems and theory development, the data needed to include several activities and networking interactions, actual learning processes and antecedents and consequences of activities undertaken by participants in the relational system (Doz, 2011). Sufficient time had to be allowed for the project and between the meetings to enable all involved actors to manage the change process related to their specific business context.

Data collection

The interaction approach was used for data collection, analysis and implementation of MO-related knowledge areas in the companies. Project presentations including lectures, guest lectures, seminars and workshops were conducted.

Major sources of the data include on-site visits and observations, individual interviews with the companies and SMEs' presentation of their homework. Observations were conducted at the firm premises to understand the production process, on-site to see how activities suggested in the work packages (WPs) function and devise improvements to the implementation. The SMEs allowed the researchers to visit their factories and committed full support during the research process, giving them confidence to start and complete the project within the stipulated time. Seven whole-day workshops took place in connection with the SMEs' presentations and completion of the introduced themes included in WPs. Individual interviews took place at company premises to investigate market challenges and opportunities regarding implementation of each WP. Seminars and workshops took place with other company members of Triple Steelix to exchange ideas on the development of the business model and to improve the companies' project implementation.

Data analysis fulfilled two purposes: to manage feedback practically and to write scientific papers (knowledge exchange). All meetings, both in-group and individual, were recorded and transcribed with the NVivo data-coding program, coded into different categories as learning outcomes and summarized into cases related to the knowledge process. Following Miles (1979), data were condensed by refining, iterating and revising the existing frameworks to suggest new leads for further data collection. This interactive approach was helpful for case identification, comparison and finding themes. According to Doz (2011) and Eisenhardt and Graebner (2007), rich qualitative data, which this study is expected to generate, helps to support theory development and models.

Because the SMEs have developed disruptive innovations critical to their success, all data are anonymous. The companies had the opportunity to comment on research data collected to ensure it was reliable and handled with care.

The MO learning and intelligence development process

The MOBM consists of four interactive research and development WPs, with two meetings in each (except for one full-day evaluation in WP 4). The WP1 to WP3-meetings aimed at SMEs describing the current situation as a basis for gap analysis, collecting information about the targeted market, disseminating it in the organization to build innovation capacity and develop strategies for internationalization. In the meetings, the researchers introduced an MO theme for the companies to work with and present in the next meeting. In the next meeting, a new theme was introduced, and so on. The companies worked with questions such as: What do we know about the market today, and what areas do we need to gather information about? (WP1); how can we disseminate and implement new information in the organization? (WP2); what strategies do we need to develop to reach the market? (WP3) and Given what we have done – what have we learned and what needs to improve? (WP4). This intelligence development process, starting with the introduction of an MO theme, continuing with working on their own and the sharing of experiences in the group, continued throughout the project. Problem formulation, ensuring that the SMEs correctly identified the MO problems they face with their products, took place in direct collaboration between the SMEs and the researchers.

To get an overview of the SMEs' difficulties with MO work and what scientific support the researchers could offer, four of the meetings were organized at the companies' premises. During the process, the SME participants were encouraged to write down experiences they obtained from the implementation of the project. The researchers also assessed how the collected data could be used for scientific publication and conducting case studies for higher education.

WP1. Developing market knowledge by market orientation – introduction and gathering of market information

Initially the participants were introduced to how the project was organized, knowledge areas of MOBM (cultural, structural and sustainability knowledge aspects) related to the international market and expectations of them and the researchers as a reciprocal contract.

Between meetings 1 and 2, participants were assigned to carry out situation analysis with questions about how they work toward the international market. Traditional MO research assumes that companies are engaged in market inventory and market research activities. This study instead assumed that SMEs lack knowledge of the current situation and market conditions and need to conduct market surveys as a foundation. The four companies had different disruptive innovations, experiences and needs for market intelligence development. In the next meetings, they shared experiences with each other, adding to their common learning. The goal of situation analysis was that the SMEs should understand current obstacles and opportunities in the international market. This mapping showed them the need for information gathering (see Kohli and Jaworski, 1990) about the conditions in the international market.

Between meetings 2 and 3, the SMEs were asked to collect new information about the prioritized international market related to customer needs and market conditions.

The WP1 meetings showed that SMEs differ in how they define the scope and size of the market. All four SMEs were highly technology-oriented and had a vague idea of which market to prioritize. The discussions concerned not only the internationalization of their primary product market but also conditions to meet related to their customers' businesses, products and market needs – the customer chain.

Lesson learned from WP1: market orientation of disruptive innovations encompasses the complexity of the customer-chain market.

WP2. Developing an innovative culture of intelligence based on market orientation for internationalization

Based on the learning from the two meetings and each SME's own work in WP1, the project continued with WP2 – introducing how to develop cross-sectional intelligence by knowledge dissemination (Kohli and Jaworski, 1990) in SME organizations. According to Narver and Slater (1990), interfunctional coordination and knowledge sharing can contribute to long-term superior value for the customer by creating a culture characterized by innovativeness. Effective and strategic internal knowledge dissemination can help companies become more proactively market-driving rather than being driven reactively to meet market demands (O'Cass and Ngo, 2007). The goal of WP2 was to encourage SMEs to disseminate knowledge of the international market within their organization in order to work strategically, in a coordinated fashion and innovatively toward the same goals.

In WP2, the SMEs had to disseminate information about the international market related to cultural, structural and sustainability aspects. Business-related aspects were about identifying which customers, suppliers and competitors they face in the international market. Cultural aspects included developing intelligence related to business culture and the international market culture, as well as discussing how to meet these aspects in the internationalization process. Structural aspects included formal and legal requirements that the companies needed to initiate learning processes to manage. To this end, they met international trade experts and lawyers. The sustainability aspects concerned issues related to how they can work to meet the United Nations 2030 goals, buyer compliance and corruption issues. During this WP, they were able to continue to gather market information.

The WP2 meetings showed that the companies had different degrees of innovativeness for working with the internal dissemination of market knowledge. Company A arranged many internal meetings, which contributed to effective knowledge dissemination; company B experienced problems with too many egos; company C chosed to keep all market knowledge within top management and company D was project-oriented and had problems disseminating new information internally.

Lessons learned from WP2: market orientation of disruptive innovations includes several organizational coordination challenges to develop internal innovativeness that meets market needs and requirements.

WP3. Developing market plans and strategies for meeting customer demands and market conditions

As Kohli and Jaworski (1990) found, a company's responsiveness to collected and disseminated market information reflects its tendency, flexibility and ability to act successfully based on knowledge of what customers want and require (see also Hyder, 2016; Sundström et al., 2016a). According to the MOBM, the SMEs should meet international market demands by developing responsiveness strategies based on data dissemination. This step is close to research, drawing attention to how companies use knowledge by planning and developing market strategies. According to Aaker and McLoughlin (2010), global innovations can be sourced anywhere, but SMEs' innovations required basic knowledge and strategies aimed at the customer-chain market to be disruptive.

Based on the knowledge development in WP1 and WP2, the goal of WP3 was for the SMEs to develop market plans, strategies and initiatives to meet international customer demands. The different (dis)advantages of different marketing strategies were discussed related to the specific business context. The researchers explained different market strategies, for instance those of Aaker and McLoughlin (2010), and through their own work the SMEs could evaluate which suited their product and market conditions. The project showed that this part of the knowledge process was most difficult for SMEs to handle. Because the SMEs were still mainly technology-oriented in discussions, the researchers had to encourage them to understand how to develop plans to meet market needs strategically.

Lesson learned from WP3: the biggest challenge for SMEs with disruptive innovation is to take the responsiveness step from knowledge dissemination to practical action.

WP4. Evaluation and business model improvements

The project involved continuous evaluations through the participants' feedback on their own work and group discussions. The researchers had to modify the MOBM according to the knowledge needs identified during the project. The companies considered that they had reached higher maturity during the process. In particular, they appreciated the exchange of experience and knowledge that occurred between them and other participating SMEs. In sum, the work with MOBM contributed to theoretical knowledge and structure, and the exchange of experience contributed to practical guidance for SMEs.

Lesson learned from WP4: The developed MOBM is well placed to structure and guide SMEs' work on internationalization, but more internal and external initiatives are required to disseminate knowledge for responsiveness and strategic action.

Customer chain challenges

Figure 2 specifies the process the SMEs follow to gain knowledge of the international buyer chain and implement effective disruptive innovation.

Figure 2 suggests that the SMEs need to have both high-end and low-end encroachment on incumbent innovation with international buyers to create disruptive innovation. For each part of the model, there is a need to identify the need for disruptive innovation within the buying chain of the customer, which makes the process complicated to execute. As an example, company A sells a machine for advanced sheet metal forming to companies that produce three-dimensional sheet metal. That sheet metal should in turn be adapted to their business buyer who uses it in car manufacturing and in turn needs to have knowledge of how end users (car buyers) regard the innovation. Company A is highly aware that it needs to influence the entire customer chain to have a disruptive innovation breakthrough on the international market, as well as that the CEO needs to devote more time to identifying and meeting the needs of customers at several levels.

The traditional MO intelligence perspective does not address how markets differ and meet varying customer needs. The theoretical discussions thus assume that information gathering and cross-sector dissemination will lead to responsiveness, influencing company performance (Kohli and Jaworski, 1990). If this interrelationship is weak, it is assumed that moderating factors can have direct impact on the MO–performance relationship (Liao et al., 2011). The four SMEs have experienced obstacles in commercializing their innovations internationally, due to a lack of market-oriented intelligence and customer contacts related to specific product innovation (Liao et al., 2011; Zehir et al., 2011; Radicic and Djalilov, 2019). But the complexity of including customers and their buyer chains with different market demands and conditions (Christensen et al., 2015) makes it difficult for SMEs to know which market information to prioritize. The study finds that SMEs need to carefully go through the customer chain to orient themselves to the market and internationalize their disruptive innovations. Theoretically, this means that research relating to MO of disruptive innovations needs to be expanded to include several levels of the customer chain.

Internal knowledge coordination and innovativeness

MO research is commonly linked to the development of innovativeness and seen as the process of achieving new thinking, openness to new ideas and the ability to learn and develop intelligence (Hult et al., 2004). This process is crucial to gaining customer acceptance of the innovation (Menguc and Auh, 2008). Innovativeness may arise based on a willingness and commitment to master the latest products or technological services (Liao et al., 2011; Urbano et al., 2019). For successful internationalization, it is not enough to develop an innovation; SMEs also need internal expertise and openness to meet international requirements (Bose, 2016; Radicic and Djalilov, 2019) and develop knowledge of the market, for instance by market research, advertising and promotion (Miller and Friesen, 1978), which requires strategic planning and coordination (Hult et al., 2004; Bose, 2016). It is important to take advantage of the firm's ability to develop strong internal knowledge capacity, resource coordination, appropriate policy formulation and innovativeness to achieve business goals (Radicic and Djalilov, 2019). MO research is commonly normative and overlooks that SMEs often develop innovations but lack necessary resources and capacity to disseminate knowledge within the organization.

The study shows that SMEs face internal barriers to developing innovativeness including weak coordination (many egos), development being a top management matter, too strong a focus on technology development and devoting most time and interest in the organization to existing projects. Company A was most successful in initiating knowledge of dissemination meetings and dividing production into different product groups, where employees worked with different marketing strategies. The study confirms that there is a weak link between innovation development and required innovativeness due to a lack of time for necessary coordination. The disruptive feature of innovation makes it difficult for an organization to internally disseminate the proper market knowledge about the innovation demands of the buyer and its buying chain. Theoretically, this study shows that internal processes are the most critical aspect for SMEs in developing disruptive international market intelligence. Most attention of all SMEs has so far been paid to technical and production-related processes.

External support to manage the gap from intelligence development to practice

The third stage in an MO intelligence perspective is to develop responsiveness to gathered and disseminated knowledge (Kohli and Jaworski, 1990). In the project, the internal shortcomings addressed in WP2 also affected the SMEs' ability to develop plans and strategies and hence effectively meet customer needs in the international market (Urbano et al., 2019; Bose, 2016). The shortcomings prevented them from developing what Narver et al. (2004) frame as an inside-out process, where they could drive the market. While market intelligence theoretically assumes links between data collection, data dissemination and responsiveness (Kohli and Jaworski, 1990), the study shows that the weakest link is between dissemination of information and applying it strategically in relation to the market. The studied SMEs understood customer-chain businesses fairly well but lacked both internal knowledge-based strategies/routines and external support to enter into the international market.