Journal of International Management 28 (2022) 100970

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Journal of International Management

journal homepage: www.elsevier.com/locate/intman

Internationalization of Digital Innovations: A Rapidly Evolving

Research Stream
Noman Shaheer a, *, Kijong Kim b, Sali Li b
a
Discipline of International Business, The University of Sydney Business School, The University of Sydney, Sydney, NSW, Australia
b
International Business Department, Darla Moore School of Business, University of South Carolina, Columbia, SC, United States

A R T I C L E I N F O A B S T R A C T

Keywords: This perspective paper synthesizes the burgeoning literature on internationalization of digital
Digital innovation innovations to identify promising areas for future research. We first integrate multiple perspec­
Digital internationalization tives on digital innovations to offer a coherent and unified definition of digital innovations. Next,
Digital entrepreneurship
we synthesize digital innovation research into a theoretical framework that discusses the inter­
Demand-side perspective
Institutional transitions
relationship between digital innovations and international business environment and its impli­
cations for international penetration of digital innovations. Our synthesis of literature highlights
the increased research focus on demand-side perspective as an appropriate theoretical framework
to explain the unique dynamics of digital internationalization. Finally, we take account of recent
trends in digital economy as well as important gaps in current literature to propose promising
avenues for future research. We particularly emphasize the need to integrate current institutional
transitions of a digital era as well as emerging theoretical perspectives such as demand-side
perspective and opportunity logic in digital internationalization research. We hope our
perspective paper will contribute toward a more systematic and theoretically grounded
advancement of digital internationalization research.

1. Introduction

The rise of digital innovations is rewriting many rules of international business (IB) (Baum and Haveman, 2020). Internationali­
zation is no longer limited to products, services, capital and people crossing physical borders, as digital innovations are connecting the
world through digital bits seamlessly travelling around the world through virtual channels. Digital innovations such as mobile apps,
online games, cloud storage, streaming services, and social media platforms enable people and businesses to access knowledge,
innovation ideas, and customers from anywhere in the world with just a few clicks (Monaghan et al., 2020; Shaheer et al., 2020). For
instance, an app developer stationed in a remote country can join IOS app store by just filling a few online forms, utilize software
development kits (SDKs) offered by globally disperse programmers to develop an app, instantly make the app available across the
globe, register the app with advertising networks in Europe and Americas to earn revenues, and use digital payment methods such as
PayPal or crypto currencies for transactions across borders, all without leaving the home country even once (Shaheer et al., 2021). The
evidence is not anecdotal. Recent studies (BCG, 2017; McKinsey Global Institute, 2016) suggest that cross-border flows in goods,
services, finances, and people have declined from 53 % of the world GDP in 2007 to only 39 % in 2015 whereas global data flows have
exploded by tenfold to reach 20,000 gigabits per second. The resulting digital economy is now engaging 314 million individuals in

* Corresponding author.
E-mail addresses: Noman.shaheer@sydney.edu.au (N. Shaheer), kijong.kim@grad.moore.sc.edu (K. Kim), sali.li@moore.sc.edu (S. Li).

https://doi.org/10.1016/j.intman.2022.100970
Received 31 August 2021; Received in revised form 17 June 2022; Accepted 4 July 2022
Available online 30 July 2022
1075-4253/© 2022 Elsevier Inc. All rights reserved.
N. Shaheer et al. Journal of International Management 28 (2022) 100970

direct cross-border transactions and enabling 80 % of small firms to start global businesses from the onset.
The burgeoning of digital innovations has also attracted scholarly attention, as evident from a large number of research papers as
well as several special issues on digitalization and digital innovations in the most prominent IB journals. Indeed, scholars find several
unique characteristics of digital innovations as important opportunities to revaluate and extend IB theories and frameworks. Research
on digital innovations particularly highlights the importance of demand-side perspective (Priem, 2001; Priem et al., 2013; Siqueira
et al., 2015) as users play an important role in development, upgradation and international success of digital innovations (Autio et al.,
2018; Priem et al., 2018; Rietveld, 2018; Shaheer et al., 2020). Researchers also stress the need to reconceptualize internationalization
by drawing attention to the instant access to globally disperse users, partners, knowledge and technologies what digital firms enjoy
since inception (Cahen and Borini, 2020; Monaghan et al., 2020; Shaheer and Li, 2020; Wormald et al., 2021). There are also broader
socio-political implications of digital innovations related to the rights of labour and complementors employed through digital in­
novations (AviYonah and Benshalom, 2011; Auerbach et al., 2017; OECD, 2019), taxation of digital firms (Tans, 2019), and national
security issues.
Despite substantial advancements, research on digital innovations remains largely fragmented due to lack of theoretical integration
and competing terminologies. A theoretically grounded synthesis of current literature is critical to coherently move forward the digital
innovation research. In this perspective paper, we seek to offer a comprehensive framework that could integrate this disperse literature
to guide future research on digital innovations. First, we develop a definition of digital innovations which could encompass different
theoretical and contextual views. Based on this definition, we identify and explore major themes in digital innovation research as well
as their interrelationships. Our synthesis of literature around these themes indicates that a refocus on the demand-side perspective and
user value creation can provide a strong theoretical foundation to future research. Accordingly, we offer a comprehensive framework
grounded in demand-side perspective to offer some important future research directions.
We contribute to IB research through a two-pronged synthesis of digital innovation research. We highlight the influence of digital
innovations in IB theory and environment as well as the impact of global socio-political environment on development, upgradation and
international success of digital innovations. We further discuss how these different themes in digital innovation research are related to
each other. Finally, we present demand-side perspective as an important theoretical framework to consolidate various perspective on
digital innovation research, which paves the pathway for coherently moving the research on the nexus of IB and digital innovations.

2. Literature review

2.1. Defining digital innovations

We first derive a comprehensive definition of digital innovations. Despite recent surge in digital innovation research, the literature
still lacks a definition that could unify the multitude of perspectives on digital innovations. We summarize prior definitions of digital
innovations in Table 1, which reflects the variety of ways in which scholars conceptualize digital innovations.
We synthesize Table 1 to identify two major perspectives on digital innovations. The first perspective focuses on digital product
innovations. Scholars taking this perspective conceptualize digital innovations as end-products that are developed through recom­
bination of digital resources, such as software development kits, cloud services, 3D printing, and artificial intelligence (Boudreau,
2012; Huang et al., 2017; Katz et al., 2003; Nambisan et al., 2017; Srinivasan and Venkatraman, 2018). One example of digital product
innovations is the South Korean app Radish, which utilizes user data in the production model to increase revenues by ten-fold from
2019 to 2020 (Lim, 2021). The second perspective focuses on digital process innovation, viewing digital innovations as combinations
of traditional products, services, and processes with newly emerging digital technologies. This perspective specifically pertains to Yoo
et al. (2010), who suggest digital innovations as an amalgamation of digital and physical components that substantially improve
products, services and processes. Shopify is an exemplar of digital process innovations, which employs digital technology such as low-
code tools and application programming interfaces (APIs) to coalesce independent merchants as well as key opinion leaders (KOL) to
meet customer demands (Dushnitsky and Stroube, 2021).
We integrate these different perspectives to define digital innovations as products, services, and processes that are developed or

Table 1
Prior definitions of digital innovations.
Digital innovation article Keywords Definitions and underlying relationships

Boudreau, 2012 Digital products The digital economy offers digital products, termed as digital innovations, which become instantly available
Huang et al., 2017 across the globe via online platforms
Katz et al., 2003
Srinivasan and
Venkatraman, 2018
Nambisan et al., 2017 Digital Digital innovation refers to the use of digital technology during the innovation process or the result of
technology innovation
Khin and Ho, 2018 Fostering digital innovation in terms of the creation of new offerings, processes or solutions using a wide range
of digital technologies
Yoo et al., 2010 Combination Digital innovations, in regards to new combinations of digital and physical components to produce novel
products
Henfridsson et al., 2018 Digital Digital innovation as the result of activities by which a set of digital resources are recombined in their design
resources and use through connections between valuable spaces

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substantially improved through digital technologies to create new value for firms and customers. This definition recognizes novel
digital innovations created through the recombination of digital resources as well as improvements in existing products, services and
processes, through the adequate application of digital technologies. Our definition also goes beyond prior research by explicitly linking
digital innovations with the concept of value creation, instead of simply focusing on technological advancements. We believe our
refined definition will contribute to a more coherent advancement of research on digital innovations.
Equipped with a definition of digital innovations, we examine these innovations through the emergence of new business models
and its implications on the international socio-economic environment. Furthermore, we highlight the significant impact of digital
innovations on IB practices and research in our subsequent sections. Together, these impacts and its implications on practice and
research represent a comprehensive framework incorporating critical drivers behind digital internationalization. We depict our
framework in Fig. 1.

2.2. Digital innovations reshaping the IB landscape

The rise of digital innovations is bringing substantial changes to the IB landscape by offering businesses new opportunities to create
and capture value across national borders. Perhaps the most prominent impact of digital innovation is the rise of born-digital firms who
leverage digital infrastructure since inception to develop and transmit their products and services across the globe (Laudon and
Laudon, 2015; Monaghan et al., 2020; Nambisan, 2017; van Alstyne et al., 2016). These firms defy the traditional wisdom of starting
from home and gradually expanding to foreign countries, as many of them instantaneously serve multiple foreign markets without
prior international experience or even deliberate intentions to enter foreign markets (Birkinshaw, 2021; Hennart, 2014; Monaghan
et al., 2020).
First, an important transition in the digital era is the emergence of new business models that lead to novel ways of creating and
capturing value across countries. One of the most prominent business models is the freemium model in which the initial consumption
precedes the payments by the consumer (Rietveld, 2018). The freemium model plays a critical role in international expansion as it
enables firms to enter countries based on user interests instead of purchasing power, and generate revenues through add-on features
(Abecassis, 2012; Arora et al., 2017). Partly, the freemium model may bridge wealth disparity by providing a unified virtual com­
munity, which may turn into a thriving network of members through a sense of belonging and common interests (Tiwana et al., 2010).
Similarly, digital firms are discovering new revenues streams through sponsorships, which removes the price barrier for a wider in­
ternational audience to substantially enhance the reach of digital products and services (Casadesus-Masanell and Zhu, 2013). The

Digital Innovaon
(Technological Features)

Cross-Border
Penetraon

Demand-Side Perspecve Polical and Social Instuons

(Development and Evoluon of Digital (Regulaons and Culture interacng with
Innovaons) Digital Innovaons)

Fig. 1. Conceptual model.

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ability to track users and their activities is also leading to subscription-based and usage-based business models, which considerably
increases the reach of digital innovations by reducing costs to users while providing useful data to digital firms.
Second, one of the most significant business models enabled by digital innovations is the digital platform or ibusiness. Digital
platforms shift the locus of innovation and value creation outside firm boundaries by bringing together complementors and users
whose contributions determine and enhance the value of platforms (Brouthers et al., 2016; Chen et al., 2019; Chen et al., 2022a,
2022b, 2022c, 2022d). Further, as seen in the example of Xiaomi, digital platforms not only provide stages for value co-creation with
its complementors and users, but also enables subsequent innovation of its users through direct investment (Tong et al., 2021).
Reliance on user contributions also alleviate many barriers, such as lack of resources or managerial attention, that traditionally
decelerate firm growth (Chen et al., 2022). Instead, platform firms create a virtuous cycle where additional users add to the value of
platform and help attract more users across countries (Li et al., 2019; Stallkamp and Schotter, 2019).
Also, another important merit of digital platforms is the reduction in internationalization risks and costs for large and small en­
terprises as well as individuals, who can participate in the global marketplace as complementors (Chen et al., 2022; Parker et al., 2016;
Shaheer and Li, 2020). For instance, approximately 80 % of all global trade requires financial or credit protection for secure trans­
actions, a requirement that limits the international engagement of many small firms (Vodacom Group., 2017). However, several digital
platforms provide such protection to all their complementors, which enables many small businesses and individual entrepreneurs to
securely conduct international transactions in the digital realm. Indeed, digital platforms stand as important drivers behind micro-
multinationals, defined as small groups and individuals from not only advanced but also developing economies who are entering
into global business landscape via platforms (Ipsmiller et al., 2022; McKinsey Global Institute, 2016).
In addition, the impact of digital innovations is not limited to businesses as there are deeper social and economic implications of the
proliferation of digital innovations. The rise of digital innovations brings forward an unprecedented era of global connectivity, as seen
in the replacement of traditional flows of goods, services, people, and finances by cross-border digital flows (McKinsey Global Institute,
2016). By 2022, global internet traffic is expected to reach 150,000 GB per second, representing a 1000-fold increase from 2002 (World
Bank., 2021). Such hyperconnectivity over digital channels is creating a vast global ‘market’ of not only products and services but also
ideas and innovations, leading to social and/or economic exchanges of both tangible and intangible elements across the world
(Coviello et al., 2017). It particularly assigns a more prominent role to individuals who communicate, collaborate, join communities,
acquire knowledge, and transmit their products, services and ideas globally (Coviello et al., 2017; McKinsey Global Institute, 2016).
Lastly, digital innovations are also creating new pathways for socioeconomic development of nations. For example, an important
digital innovation is fintech technology that is efficiently linking businesses and individuals within and across countries (Astha and
Biot-Paquerot, 2018; Scott et al., 2017). Fintech is playing a critical role in enhancing economic participation of previously disad­
vantaged groups such as females in emerging economies and inhabitants of rural areas (Astha and Biot-Paquerot, 2018). However,
enhancing public welfare and overall national competitiveness through digital innovations go beyond the availability of technological
infrastructure and digital competencies to also encompass an adequate level of digital trust on the security, quality and trustworthiness
of digital innovations (Chakravorti et al., 2021). Countries with high performing digital sectors, such as Singapore, EU, New Zealand
and UAE, are mostly characterized by strong government and policy involvement in digital sector (Chakravorti et al., 2017). Hence,
public policy initiatives to improve digital trust are critical to take advantage of digital innovations.

2.3. Digital innovations extending IB theory and research

Besides their significance for IB practices, digital innovations also offer promising opportunities to rethink and extend current IB
theories. In particular, most IB research takes a resource-based view, which grants multinational firms the central stage in the process
of innovation and value creation (Ferreira et al., 2011; Peng, 2001). Most research on digital innovations, however, takes a demand-
side perspective which extends beyond organizational boundaries to include demand-side factors, particularly users, as arbitrators and
creators of value (Nambisan et al., 2019; Priem et al., 2018; Rietveld, 2018; Shaheer and Li, 2020). Users in the digital age are no longer
passive receivers of value, but important contributors to the international success of digital innovations (Chatterji and Fabrizio, 2014;
Priem et al., 2013; Siqueira et al., 2015; Shaheer, 2020; von Hippel, 2005). Consequently, researchers (Alcácer et al., 2016; Griffith and
Lee, 2016; Gregory et al., 2020; Shaheer et al., 2020) suggest that the international performance of digital innovations is determined by
the interaction of internal resources and capabilities with demand-side factors outside firm boundaries.
The shift in theoretical focus from resource-based view to a demand-side perceptive is critical in view of the key attributes of digital
innovations, particularly the availability of real-time big data, modularity, and generativity, which grants customers a more central
stage in the process of innovation and value co-creation. In particular, digital innovations shift the locus of innovation from globally
disperse subsidiaries to globally disperse end users. The real time monitoring of users through advanced big data and AI-based ana­
lytics offers firms a variety of innovation and upgradation ideas what firms can instantly implement to improve their digital in­
novations (Autio et al., 2018; Shaheer et al., 2020). Users also take a more direct role as complementors, who directly contribute to
products, services, and ideas to enhance the global appeal of digital innovations (Banalieva and Dhanaraj, 2019; Chen et al., 2020;
Dattée et al., 2018). The role of complementors is particularly evident in the fast rise of digital start-ups such as AirBNB and Reddit, to
tech-unicorns (Louise, 2020). Such dynamics require a greater attention to the demand-side, as scholars move beyond subsidiaries,
alliances, and joint ventures to identify novel ways for engaging users and external stakeholders to improve global footprint and attain
competitive advantages across national markets. Indeed, an adequate recognition of demand-side drivers through user engagement is
well reflected in the so called low-code entrepreneurship (Dushnitsky and Stroube, 2021), which possesses not only limited resources
but also limited technological knowledge.
The increased reliance on users and the broader external stakeholders provides an appropriate context to move beyond the

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traditional technology-push or resource-based perspective (Coviello, 2006; Dunning, 1973; Freeman, 1974; Johanson and Vahlne,
2009; Rosenberg, 1982) to embrace a demand-side perspective in IB research. There is an increasing emphasis on demand-pull in­
novations as the success in digital realm is largely determined by the extent to which digital innovations sufficiently meet the taste and
preferences of users across countries (von Hippel, 1976). Demand-pull innovations require firms to wield both the “Sword” and the
“Shield”. On one hand, the need for proprietary user for continuous upgradation requires the “sword” to rapidly increase the number of
users through aggressive publicization. On the other hand, digital firms also maintain a “shield” to protect the firm advantage. Hence,
continuously updating and upgrading demand-pull innovations to satisfy evolving customer tastes and preferences is critical for digital
firms to remain competitive in the global digital economy (Kumar et al., 2013; Schemmann et al., 2016).
Next, we take the broadly defined demand-side perspective to examine the two common themes in IB research—internationali­
zation and the role of the variety of business environment across countries.

2.3.1. International penetration of digital innovations

The digital innovations' reliance on demand-side factors has important implications for international penetration/internationali­
zation in IB research. Unlike traditional firms that gradually internationalize to a few countries by orchestrating cross-border flows of
products, people and investments, many firms in the modern digital economy start transmitting bits and digits across the world since
inception (Cavusgil and Knight, 2015; Coviello et al., 2017; Shaheer and Li, 2020). The relevance of other traditional adages of IB,
particularly liabilities of foreignness, may also decline. Born-digital firms and multinational corporations (MNCs) with digital presence
alike, may enjoy lower embeddedness in their home country contexts as they can virtually access non-location-bound firm-specific
assets (FSAs) of other firms and combine them with their complementary FSAs (Banalieva and Dhanaraj, 2019; Gooderham et al.,
2022; Rugman and Verbeke, 1992, 2001; Shaheer et al., 2020).
Nevertheless, digital innovations do not necessarily possess a “golden ticket” to fast penetration across diverse countries as they
face certain impediments to internationalization. Research shows substantial impact of user adoption barriers that prelude interna­
tional penetration of digital innovations due to differences in user tastes and preferences around countries (Shaheer et al., 2020).
Furthermore, as many digital firms do not possess sufficient resources to overcome user adoption barriers, they may rely on value co-
creation with customers to facilitate their internationalization. In particular, Shaheer and Li (2020) prescribe two strategies, social
sharing strategy and virtual community strategy. Digital firms employing social sharing strategy encourages users to post their
interaction with digital innovations on their social media profiles, which publicizes the innovation within the social networks of users.
Digital firms with virtual community strategy enable users to contribute and/or compliment the digital innovations. Such publicity and
contributions by users may help digital innovations penetrate across countries by the force of network effects.
Researchers also highlight the importance of lead markets, defined as countries where local demand environments induce in­
novations that could expand across multiple countries. While the concept of lead markets is well recognized in prior research (Bartlett
and Ghoshal, 1989; Beise, 2001), lead markets for digital innovations may exhibit some distinct characteristics. In particular, Shaheer
et al. (2020) identify two types of countries can act as lead markets, countries that share similar preferences with a large number of
other countries, and countries with high heterogeneity of user preferences.
Finally, researchers recognize the critical role of network effects for cross-national diffusion of digital innovations. Network effects
refers to the increase in the value of a product or service due to an increase in the number of its customers or users (Katz and Shapiro,
1994; Rohlfs, 1974). While network effects play a critical role in the internationalization of digital innovations, researchers recognize
that network effects may stall at borders when users in one country offer limited value to users in another country (Stallkamp and
Schotter, 2021). To overcome the limitation of network effects, researchers draw from social network theory, which examines the
implications of social structure at the level of individuals and groups (Suarez, 2005; Wilson, 1975). In particular, scholars focus on the
interplay between network externalities and social network theory by acknowledging that firms may cultivate networks in high clout
countries, which could enhance the value of firm network in foreign countries and help firms overcome their liabilities of outsidership
(Chen et al., 2019). Recently, there has been an effort to expand this research on network effects of high clout countries, to examine
that of the broader ecosystem and its difficulties and costs in international penetration (Rong et al., 2022). As we call attention to the
multiplicity of factors influencing international penetration across countries, we further extend to shed light on the impact of digital
innovations on the overall IB environment and its research implications.

2.3.2. Digital innovations and the IB environment

Despite several internationalization challenges, the relatively fast penetration of digital innovations across countries inevitably
brings important changes in the IB environment. The advent of modern digital economy challenges the traditional wisdom about
differences and connectivity across countries, which are the central tenant of IB environments. Mainly, the relevance of transportation
costs caused by higher geographic distances and transaction costs arising from differences in political, legal, economic systems may
decline for digital firms (Alcácer et al., 2016; Autio et al., 2018; Cavusgil and Knight, 2015; Coviello et al., 2017). Instead, researchers
(Brouthers et al., 2016; Ghemawat, 2011, 2018; Rietveld and Eggers, 2018; Shaheer and Li, 2020) indicate that the internationali­
zation of digital innovations may largely depend on similarities and differences in user tastes, preferences and behaviours across
countries, as reflected in actual choices people in a country make. Empirical research (Chen et al., 2019; Shaheer et al., 2020) also
shows that quantitative indices based on actual choices are likely to outperform traditional measures extracted from macroeconomic
indicators or survey-based data, particularly when analysing the internationalization of digital innovations. Accordingly, there are
increasing calls to develop new conceptualizations and measures for better understanding the IB environment of a digital age.
The recent rise of big data provides a timely opportunity to analyze countries based on actual choices made by users around the
globe. Big Data offers the critical opportunity of profiling individual users based on their interests and preferences which, according to

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McKinsey (2020), is one of the most promising opportunities to unlock the potential of Big Data. Scholars (e.g. Grimmer and King,
2011; Trusov et al., 2016) have successfully developed individual user profiles from online surfing data which, from an IB perspective,
can be aggregated on national levels to identify novel similarities and differences across countries. As a theory driven discipline
however, the field of IB aims at using big data in a way to inform and extend current theoretical frameworks, which could help IB
researchers improve the scope and the rigor of their studies (Buckley et al., 2017; Cuypers et al., 2018; Meyer et al., 2017; Verbeke
et al., 2018). As mentioned by Caprar et al. (2015), online data on the actual choices and behaviours of user can help understand
national characteristics and cross-national differences, which can guide IB research in a digital age. Accordingly, Shaheer and Li (2020)
propose that an important way to delineate the patterns of behaviours and preferences is to compare online activities across countries,
such as differences in the usage of different types of apps across countries.
Like other technologies, digital innovations are affected by the broader IB stakeholders, who can influence the development,
features, and success of digital technology. For instance, the real-time interaction with users across countries enables digital firms to
quickly evolve and upgrade features of their digital innovations to satisfy user needs (Shaheer et al., 2020). As a result, countries in
which digital innovations acquire users, play a critical role in shaping its features, business model, and future growth. Some important
examples are social media platforms such as Myspace, Orkut and Facebook, who developed different features and value propositions
because they acquired users in different parts of the world (Chen et al., 2020; Susarla et al., 2012).
With recent attempts to regulate digital innovations, there is also an increasing influence of the macro environment on digital
innovations and their business models. Compliance with the laws of storing data on domestic servers has made many companies
localize their operations, features of their digital innovations, payment systems and corporate policies. There is also increased political
risk as digital innovations are turning into tools of espionage and threats to security, as evident by recent allegations by US on Chinese
digital innovations stealing data of US firms and users. Governments may fully acknowledge such risks and go to the extreme of
banning foreign digital innovations (Kastrenakis, 2020; Stallkamp, 2021). Such regulatory measures require digital innovations to
design their features in a way to satisfy the myriad of regulations across countries. An important example is Tiktok adding new AI
features for regulating and monitoring its content to comply with different laws and public sentiment across countries.
Indeed, governments substantially differ in their policies regarding open data sharing, internet censorship, and sharing economies
(Chakravorti and Chaturvedi, 2019). In particular, some countries such as the European Union's General Data Protection Regulation
(GDPR) have enacted restriction on collecting location-specific data (Chander and Lê, 2014). It indicates that the predefined notion of a
borderless cyberspace (Barlow, 1996) may no longer hold. There are also risks about the censorship on data flows as some governments
are regulating the consumption of information on the cyberspace. Indeed, some scholars predict the emergence of “splinternet,” in
which data movements will be limited to national borders (Stallkamp, 2021). Transition in labour rights is another burning socio-
political issue as the boundary between a worker and user is blurring (AviYonah and Benshalom, 2011; Auerbach et al., 2017;
OECD, 2019). There have been discussions to classify complementors as workers who deserve payments for their contributions to
platforms. There are also demands to ensure better payments and working conditions for these complementors, even though digital
platforms consider them users or independent businesses instead of employees, and often exclude them from any protection,
employment rights, and benefits (Lane, 2020). Therefore, from a broader demand-side view, it is important to look into the different
types of users and stakeholders of digital innovations in order to better understand the implications of digital innovations.

3. Future research directions

Our literature review highlights substantial scholarly interest in retransformation of IB theory and practice in the digital arena. In
particular, the dynamics of digital internationalization are shifting research attention toward a demand-side perspective as a more
appropriate lens to examine the unique interactions between institutions and digital innovations, which subsequently shape strategies
and internationalization processes for digital innovations. Given the influence of demand-side factors on digital innovations, we
suggest that future research may further advance IB research in a digital era by deepening the link between core IB theories and
demand-side perspective.
Below, we suggest some important venues for extending key IB frameworks in a digital era, particularly by integrating them with a
demand-side perspective. Specifically, we highlight important transitions and research gaps related to broader institutional envi­
ronments surrounding digital innovations, global strategies digital innovations employ for navigating the institutional landscape, and
governance of globalized digital innovations in an increasingly complex and uncertain institutional environment.

3.1. Institutions: from distance and profiles to transitions and uncertainties

Institutions play a central role in IB research. Higher institutional distance impedes business expansion and profitability in foreign
countries whereas institutional profiles, such as the state of institutional development or availability of resources and alliance partners
in a country, offer important advantages to both foreign and domestic businesses (Dunning and Lundan, 2008; Kostova, 1997; van
Hoorn and Maseland, 2016; Zaheer, 1995). In a digital context, recent research (Chen et al., 2019; Shaheer & Li, 2019; Shaheer et al.,
2020) has already started reconceptualizing institutional distance and country profile based on user preferences on demand-side,
introducing novel constructs like virtual distance, virtual clout, and digital lead markets. Despite these advances, researchers
largely take a static view of institutions in a digital age instead of exploring rapid changes in institutional environments in response to
digitalization. It is imperative to shift research focus to institutional transitions and resulting uncertainties to offer a more realistic and
relevant understanding of dynamic interdependence between digital innovations and institutions.
Retransformation of institutional systems in response to a digital era has garnered little research attention as legislators were

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initially slow to enact regulations pertaining to digital innovations (Birkinshaw, 2021; Büge and Ozcan, 2021; European Commission,
2015; Ting and Gray, 2019). Gradually, the burgeoning of the digital economy and its impact on social and political environments
attracted regulatory interest, leading to vivid debates on privacy laws, taxation systems, and national security among others, across
countries as diverse as European Union, Israel, Japan, Mexico, Russia, China, U.K., and USA (Breland, 2018; Edelman, 2020; Hogan
Lovells, 2019). As a result, digital innovations are facing a dynamic institutional environment where institutions around the world are
retransforming at varied paces across countries. For instance, the European Union is quickly passing several digital regulations,
Australia is taking a gradual approach by introducing few legislations at a time, China has started strictly regulating digital sectors after
several years of oversight, while many countries in Africa and Latin America have made little or no progress (Chakravorti and Cha­
turvedi, 2019; Candelon et al., 2021).
Taking a dynamic view of institutions offers novel venues for extending current digital innovation research in an era of institutional
transitions and upheavals. A fundamental question is the impact of institutional changes and uncertainty on the development of digital
innovations across countries. Digital innovations mainly represent a nascent industry with fleeting market structures, lack of clear and
uncontested product definitions or dominant designs, and substantial opportunities for developing novel and disruptive innovations
(Anthony et al., 2016; McDonald and Gao, 2019; Navis and Glynn, 2010; Zuzul and Tripsas, 2020). Historically, nascent industries
have emerged in developed economies that share similar institutional arrangements and relatively high institutional stability (Peng
et al., 2008; Vernon, 1979). However, digital innovations constitute an unparalleled nascent industry where the ease of innovation is
enabling businesses and even individuals around the world to develop and market digital innovations (Chakravorti et al., 2015). This
emergence across diverse and fast changing institutional environments raises several new and interesting research questions. To what
extent digital regulations in a country can facilitate or constrain the development of digital innovations and what strategies can help
overcome institutional barriers? Under what situation, digital regulations can undermine the innovative capacity of the digital sector
by encouraging more incremental innovations and how the novelty of digital innovations can be preserved on the face of increasingly
complex and uncertain regulations? Such uncertainties may also present opportunities what researchers may explore. For instance,
unclear AI regulations in China are considered as an important driving force behind the development of the Chinese AI sector
(Chakravorti et al., 2019; Li et al., 2021).
Such turbulent changes in the social and regulatory environments along with rapid technological advancements have substantial
implications for foreign entry and internationalization strategies of digital firms, what future research may explore. Some scholars (e.g.
Stallkamp and Schotter, 2021) suggest that digital firms employ traditional entry modes like greenfield investments, joint ventures or
acquisitions whereas other scholars (e.g. Birkinshaw, 2021; Brouthers et al., 2022; Shaheer and Li, 2020) consider traditional entry
modes less relevant in a digital age. Indeed, these scholars stress digital entry and platform entries as new modes of foreign entry that
are distinct from traditional entry modes. At the same time, increasing regulatory scrutiny and emphasis on keeping local data within
national borders is leading to hybrid entry modes where purely digital firms maintain digital infrastructure and liaison offices in
foreign countries (Shaheer et al., 2021; Stallkamp, 2021). Many digital firms are also combining different constellations of entry
modes, such as an initial entry through digital channels without foreign investments and subsequent establishment of local offices,
especially when their growing userbases start attracting regulatory attention and customer concerns with data privacy. On the other
hand, traditional manufacturing firms are undergoing digital transformation for entry modes such as re-internationalization through
digitalization, to overcome regulatory multiplicity and variance across borders (Yu et al., 2022). Such transitions in entry modes and
international strategies as well as the possible emergence of novel entry modes can offer a critical area to future researchers.
An equally important question is related to institutional challenges for digital internationalization strategies. Most digital in­
novations enjoyed an era of low regulatory complexity, which enabled them to seamlessly penetrate foreign countries via virtual
channels. While the ability of virtually penetrating foreign countries is still an important internationalization opportunity, the impact
of digital regulations such as privacy laws, copyrights, net neutrality, and income reporting for tax purpose etc. on digital interna­
tionalization is an open question. Many traditional advantages of digital innovations, such as using AI and big data for triangulating
user data across countries, are also restricted through new privacy laws like GDPR. A particular challenge is data localization policies
as countries are strictly monitoring the access of their data by foreign firms. As a result, internet is evolving into a ‘splinternet’ where
countries are enacting national borders in cyberspace through data protection and censorship (Stallkamp, 2021). It is a contested
inquiry that to what extent such shifts to the splinternet and creation of country-specific data islands influence the ability of digital
innovations to continuously upgrade and iterate by triangulating their vast depositories of user data across countries.
Researchers may go beyond digital firms to also analyze policy issues of a digital era. Further research is needed on the mechanism
of ensuring data exchange across countries for improvement in innovation outputs while also minimizing national security concerns.
Evaluating economic benefits and national security concerns in a digital era presents a fruitful research venue, particularly in view of
recent issues surrounding fake news and Cambridge Analytica. Further, as data is turning into a new oil, governments are raising
concerns on digital firms freely accessing data across the world. There is active conversation around measuring gross data output of
countries and developing policy to regulate and possibly tax the ‘export’ of data (Chakravorti et al., 2019). Equally important are
concerns about protection of jobs as digital innovations may automate many tasks traditionally performed by humans. Future research
may explore institutional changes that could balance the productivity gained through digitalization while also ensuring the distri­
bution of benefits to wider society.

3.2. Global strategy: from the resource-based view to a demand-side perspective

Research on global strategy recognizes institutional differences as a key challenge for foreign expansion and emphasizes the need
for resource or ownership advantages for successful internationalization (Knight and Cavusgil, 2004; Peng, 2003; Santangelo and

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Meyer, 2011; Zaheer, 1995). The traditional emphasis on resources is less relevant in a nascent industry like digital innovations, where
value of resources is unclear on the face of rapid changes in user preferences and institutional environments (Furr and Eisenhardt,
2021). Instead, digital innovations may follow an opportunity logic as they continuously iterate and evolve to address changing user
preferences and adjust to uncertain institutional environments (Chen et al., 2021a, 2021b; Shaheer et al., 2021). Accordingly, current
research on digital internationalization shifts focus to a demand-side perspective to highlight the role of users in internationalization of
digital innovations (Amit and Han, 2017; Autio et al., 2018; Shaheer and Li, 2020).
Despite substantial advances in extending global strategy research in a digital era, several important questions remain. One
important research area is the possibility of leveraging demand-side factors to navigate institutional transitions. Some digital firms
have ventured in this direction. One example is Uber, who leveraged public support to navigate institutional changes. In London, Uber
used a petition signed by 500,000 people to defend itself against regulatory sanctions. As another example, Alibaba's initiative to create
an Electronic World Trade Platform (eWTP), which enabled small and midsized enterprises from emerging economies to engage in
international e-commerce, converted Alibaba to a strategic partner for many governments in host countries. Consequently, Alibaba
influenced governments to pass several favourable regulations pertaining to virtual free trade zones, data sharing, and virtual trade
policies (BCG, 2019). Such cases indicate that creating value on demand-side may help digital firms not only adjust to institutional
changes but also shape institutional environment in their favour by winning the support of public and regulatory authorities. Such
initiatives may require new ways of choosing right users to serve, novel business models to create value for multiple stakeholders, and
significant risk taking, which may open several new research avenues.
Another lever to leverage demand-side factors is strategy by doing approach, which requires greater research attention. Changing
user preferences and institutional transitions may reduce the possibility of achieving competitive advantage based on a static pool of
valuable, rare, inimitable and nonsubstitutable resources (Furr and Eisenhardt, 2021; Ott et al., 2017). Instead, digital firms may need
continuous experimentation and iterations to better understand and fulfill user needs (Chen et al., 2021; Shaheer et al., 2020). Indeed,
modern technologies enable digital firms to cost effectively develop and market their innovations around the world with little
resource-based advantages (Amit and Zott, 2001; Coviello et al., 2017), which may encourage greater experimentation with different
business modes and products in different countries, leading to different organizational routines, learning processes, and an over­
whelming variety of innovations (Boudreau, 2012; Zhu and Iansiti, 2012). Possibly, speed of configuring and reconfiguring resources
and experimenting with innovative models may take precedence over substantial, long term, resource commitments. However,
research sheds limited light on the effectiveness of the strategy by doing approach in operating across multiple institutional envi­
ronments exhibiting varying levels of institutional transitions and uncertainties. In particular, researchers may explore whether the
learning and related flexibility processes accumulated through the strategy by doing approach can help firms adjust to changing
institutional environments in current markets or enter new countries with different institutional environments. Scholars may also look
for the micro-foundation of the strategy by doing approach. More research is needed to understand the role of managerial motivations,
incentives, and risk appetite for pursuing a strategy by doing approach instead of building long-term resource-based advantages.
Researchers also need to pay greater attention to external resources within ecosystem compared to internal, firm specific resources
(Amit and Zott, 2001; Autio, 2017; Boudreau, 2012; Zhu and Iansiti, 2012). The locus of innovation is shifting to demand-side en­
vironments where digital businesses rely on information-based resources that have a relatively higher degree of mobility and an
increased risk of value migration (Amit and Zott, 2001; Amit and Han, 2017; Autio, 2017; Singh and Kundu, 2002; Zott and Amit,
2010). It requires further research on the capability of managing the opportunities that reside outside organizational boundaries in
broader ecosystems, particularly in demand-side environments. Indeed, researchers may take an integrative approach to simulta­
neously evaluate internal resources, external resources, and demand-side factors to offer a more comprehensive set of success factors
behind digital internationalization. It may be a fruitful research direction to explore situations where internal resources, external
resources, and demand-side factors complement or substitute each other.

3.3. Governance: from internalization to network orchestration

Successful penetrations across countries present the challenge of governing digital innovations in diverse, rapidly evolving insti­
tutional environments. A large portion of IB research focuses on the governance choice of using markets versus hierarchies (i.e.
internalization), stressing firms to choose more efficient path with lower transactions costs (Buckley and Casson, 1976; Coase, 1937;
Hennart, 1982; Williamson, 1975). Research on digital innovations indicate that digital internationalization is a function of estab­
lishing networks, instead of acquiring physical assets, in foreign countries (Banalieva and Dhanaraj, 2019; Coviello et al., 2017; Li
et al., 2019). Going beyond the dichotomy of markets and hierarchies to explore governance of external networks present an inter­
esting set of research questions (Chen et al., 2022). This is particularly critical in view of varying regulations and/or informal social
expectations across countries regarding rights of network partners and more equitable relationships between digital innovations and
their external networks.
There are new governance challenges as regulators and societies are questioning the fairness and equity surrounding the re­
lationships between digital innovations and their networks of users and complementors. With lower influence of institutional envi­
ronment, many digital innovations resorted to standard policies for governing their networks across countries. Most of them treated
users and complementors as volunteers operating with lower or no payments, little privacy and little control over data they share with
digital innovations. These rules are changing, demanding digital innovations to grant high privacy and wherever applicable, fair
monetary compensations. It opens an important venue for research on differences in network governance choices across countries as
well as under different levels of institutional changes and transitions.
Taking a demand-side view for governing external networks also shifts research focus from efficiency or cost reduction to gaining

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competitive advantages through cultivation of user networks in right countries. Researchers may explore competitive heterogeneity
based on different governance choices for external networks. For instance, how differences in the size and composition of networks
may distinguish the tacit knowledge and innovation ideas received by different digital firms as well as differences in innovation
outputs, strategies, and internationalization patterns. Further, the impact of institutional environments and transitions on firm choice
of governance mechanisms can be an important research direction.

4. Conclusion

Digital innovations are revolutionizing not only businesses but also political systems, societies, and daily lives of people around the
world. Such transitions are opening the gateway for revaluating and rethinking our current understanding of IB frameworks in a digital
era. Our synthesis of literature acknowledges and appreciates current research progress in this regard. At the same time, we indicate a
plethora of unexplored research questions that are critical to advance our knowledge about the unfolding phenomenon of digital
globalization. We hope this perspective paper will attract the interest of scholarly community toward a deeper investigation of digital
innovations and their impact on IB theory and research.

Acknowledgements

We are grateful to the editor Vikas Kumar and one anonymous reviewer for the valuable advice and feedback. This research was
supported by the University of South Carolina Center for International Business Education and Research (CIBER) grants.

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