International High‐Tech SMEs Amid Geopolitical Pressures

Abstract

In the wake of increased geopolitical tensions, we investigate the impact of geopolitical risk on the investments of international high‐tech small and medium‐sized enterprises (SMEs). Prior research on SME internationalization has primarily emphasized the importance of home and host‐country institutions and political risk, with limited attention given to geopolitical risk as a distinct contextual factor. Drawing on international relations literature, we posit that geopolitical risk, captured by diplomatic relations between home and host countries, creates political legitimacy concerns for international high‐tech SMEs, discouraging their international investments. This effect is contingent on SME innovation (through patents) and the scope of international diversification. Analysing data from international high‐tech SMEs and their subsidiaries for the period 2009–2022, we find consistent evidence for our hypotheses.