International High-Tech SMEs Amid Geopolitical Pressures

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.