Purpose The purpose of this paper is to examine the impact of institutional environment on the international performance of small- and medium-sized enterprises (SMEs) and how this relationship is influenced by network competence. Design/methodology/approach This study uses a quantitative approach. In total, 119 internationally operating Finnish SMEs from five industry sectors are sampled via a cross-sectional survey. Data are analysed through regression modelling. Findings The international performance of SMEs is influenced directly and indirectly by institutional drivers. The results show that network competence mediates the positive relationship between institutional drivers and international performance. Research limitations/implications Network capability development can help SMEs leverage more or less favourable institutional environments for successful internationalisation. Perceived institutional drivers directly result in higher performance, but the effect can be partially mediated by dynamic capabilities. The limitations of the study include its single-country context and the cross-sectional nature of the data. Practical implications SMEs should take their home countries’ institutional environments into account, but for long-term success, they should develop the ability to manage their business networks. A conducive institutional environment may help develop competence, which in turn can enable more successful internationalisation in terms of scale, scope and satisfaction. Social implications Decision-makers may benefit from knowing that, in addition to capabilities, an institutionally conducive environment that drives domestic SMEs towards international markets may be an antecedent of successful internationalisation in the SME sector. Originality/value This is one of the few studies to illustrate how network capabilities can mediate the influence of institutional factors on entrepreneurial internationalisation. It combines institutional theory and the dynamic capabilities view to explain successful SME internationalisation.
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