Digital transformation programs at the national level had a significant impact on innovation. However, there is a lack of understanding as to whether this dynamic is compounded by the higher exposure to international trade, thanks to digitalization. Thus, the objective of this chapter is to demonstrate that a nation's spending on digital transformation may encourage local organizations to expand their business beyond national borders, which could enhance their innovation potential. Drawing on recent secondary data compiled for 115 countries, the effect of digital readiness on a country's innovation index was tested with path analysis using AMOS software. The findings confirm the positive and significant effect of country digital readiness on both, trade openness and innovation. However, these results show that trade openness negatively mediates the relationship between a country's digitalization and innovation capacity. This result may be explained by the insufficient absorptive capacity of newly internationalized firms and the cultural hindrance in cross-border collaborations.
TopIntroduction
Digital transformation programs aimed at improving digital platforms and infrastructure at the national level have had a significant impact on innovation and entrepreneurial activity in general (Myovella et al., 2020). Digital transformation is a growing phenomenon in organizations that is characterized by substantive business model transformations driven by innovative digital technologies (Zhang & Chen, 2023). The modernization of digital conditions is key to economic prosperity, as it directly affects the quality of the business environment. Different countries have been making significant efforts to ensure the effectiveness and affordability of digital platforms, including mobile technologies, cloud computing, and the Internet of Things (Gurbaxani & Dunkle, 2018). As a result, digital transformation has a positive impact on economic development and other indicators, such as employment and labor productivity (Aly, 2022). In the same sense, digitalization accelerated the decentralization of governmental decision-making which facilitated the achievement of sustainability development goals (ElMassah & Mohieldin, 2020).
Despite growing interest in understanding the effects of digital transformation on the innovative capacity of local organizations, it is unclear whether this dynamic is exacerbated by another effect associated with increased exposure to international trade as a result of digitalizationEvidence shows that digital transformation allowed major shifts in trade modes and the related business models including the distribution channels. It disrupted the old trade traditions as digital forms of products are replacing the physically embodied ones (Ciuriak & Ptashkina, 2018). Furthermore, digitalization has generated opportunities for international business and digital commerce (Ahmedov, 2020). Therefore, the present chapter will attempt to address the following research question: Does a country’s digitalization boost its innovation capabilities by promoting trade openness? The latter is defined as a country’s exposure to international trade, materialized in terms of exporting and importing activities (Afesorgbor & Demena, 2022).
Our objective is to demonstrate that a country’s investment in digital transformation can encourage local organizations to expand beyond national borders, which can help them increase their scope, diversify their operations, and expand their product markets through sustained innovation efforts. Indeed, trade openness benefits nations by contributing to economic growth (Intisar et al., 2020; Kong et al., 2021) and innovation in particular (Galbreath, 2019). By examining the impact of nationwide digital transformation efforts on imports and exports, this chapter aims to shed light on how these initiatives can contribute to enhancing the overall innovation potential of the local economy. Furthermore, understanding the relationship between digital transformation and international trade can provide valuable insights for policymakers seeking to foster economic growth through technological advancements.
To our knowledge, no study had focused on the interplay between those three dimensions, namely country digital readiness, trade openness and innovation capacity. Filling this gap represents the main contribution of the present manuscript. If the findings support the hypothesized model, this would be insightful for policy makers at state level. Their attention would need to focus on imparting technological updates that support the exposure and accessibility of local organizations to partnering opportunities abroad, e.g., outsourcing, simplified digital monetary transfers. Changes could also concern the development of e-government services destined to foreign companies, with the aim of facilitating the paperwork and procedures necessary to invest in local collaborations with domestic firms.
This chapter is organized as follows: The first section provides an overview of the literature on digital transformation and states the three research hypotheses. Then, the methodology applied is explained, followed by the research results and discussion. Finally, the conclusion presents the significant contributions, as well as future research directions.