External Orientations, Internal Capabilities, and Firm Performance: Pathways to Global Competitiveness of Korean SMEs

Purpose – This study investigates how the external orientations (government, large-firm, and global orientations) of Korean small and medium-sized enterprises (SMEs) influence firm performance through the mediating role of internal capabilities (innovation and management capabilities), thereby identifying strategic pathways for enhancing global competitiveness. Design/Methodology – Drawing on the resource-based view, social network theory, and dynamic capability perspective, we develop and test our hypotheses using survey data from 250 Korean SMEs with export experience. Multiple regression analysis and Sobel tests are used to examine direct effects and mediating mechanisms. Findings – An analysis of the direct effects of external orientation on firm performance reveals that global orientation significantly enhances both innovation performance and management performance, while government orientation affects only innovation performance. Large-firm orientation shows no significant influence on either outcome. Regarding the effects of external orientation on internal capability, global orientation positively influences both innovation capability and management capability, whereas government orientation only affects innovation capability. Internal capability demonstrates strong positive effects regarding innovation capability on innovation performance and management capability on management performance. Sobel tests confirm that innovation capability partially mediates the relationship between government orientation, global orientation, and innovation performance, whereas management capability fully mediates the relationship between global orientation and management performance. Originality/value – This study extends the strategic orientation research by conceptualizing and differentiating three types of external orientations and empirically demonstrating their differential impacts on SMEs performance. By revealing the mediating mechanisms through which external orientations transform into performance outcomes via internal capabilities, this study provides theoretical and practical insights for Korean SMEs to enhance their global competitiveness and contribute to the sustainable growth of Korean trade in international markets.