Product–Market Growth Strategies and SME Performance in International Markets: Evidence From Chinese Manufacturers

Abstract

This study empirically examined 276 Chinese manufacturing small- and medium-sized enterprises (SMEs) for the SEM and regression analysis to explore the relationships between product-market growth strategies and international performance. Based on the empirical results, this study found that market penetration and development strategies significantly promote firm’s financial performance in the international market. But the product development and diversification strategies significantly restrain the financial performance. Besides, market penetration and product development strategies have a significantly positive effect on strategic performance in international markets. However, the market development and diversification strategies show a significant negative effect on the strategic performance.

Keywords

Ansoff’s growth matrix product-market growth strategies international performance Chinese SMEs

Introduction

With the evolution of global economic integration, small- and medium-sized enterprises (SMEs) from emerging countries are trying to expand their businesses into a broad international market on the purpose of gaining the economic and long-term growth. It is an undeniable fact that going international has become an essential approach for SMEs to gain growth and industries across various sectors are seeking growth in the international markets (Lu & Beamish, 2001; Lu et al., 2010; Moreira et al., 2024; Rahman et al., 2023). In studies of international business and strategies, the geographic expansion is usually utilized to describe the internationalization phenomenon, or international expansion (Lu & Beamish, 2001). Many studies have proved that SMEs could receive more opportunities and achieve exceptional performance by entering foreign markets and broadening their consumer bases overseas (Anggadwita et al., 2023; Lu & Beamish, 2001; Safari & Saleh, 2020). And among these discussions of internationalization superiority, many explored the degree of internationalization, speed of internationalization, and manners of internationalization. However, it is vital to note that “SMEs in emerging economies face signiﬁcant challenges in formulating effective strategies to enter international markets” (Anggadwita et al., 2023, p. 763). Despite the crucial importance of internationalization, little attention has been given to the corporate-level strategies of SMEs to expand overseas.

Considering SMEs which usually face limited resources and cannot compete in international markets on large enterprises’ scale and resource advantages, Cabral et al. (2020) emphasize the importance of developing firms’ strategy which matches their resources. According to the resource-based view (RBV), Grant (1991) indicates that the foundation of a company’s strategy is its resources and capabilities. These resources must be diverse and complex, with characteristics that can make them a source of competitive advantage. Barney (1991) further notes that SMEs must build competitive advantages through the valuable, rare, inimitable, and non-substitutable resources (VRIN). That may include proprietary technology, expertise, geographic location, or customer relationships. As emphasized by Melendez-Campos et al. (2024), strategic formulation is a process that requires deep thought, meaning that companies, in their strategic planning, must fully consider the potential and limitations of their resources and how to leverage these resources to address opportunities and challenges in the external environment.

To avoid the blind expansion and survive in the international markets, how should SMEs choose the appropriate product-market strategy for expansion globally? Based on the perspective of strategic management, Ansoff’s (1965) Product-Market Matrix might offer a conceptual framework and strategic directions for firms to achieve the growth in markets. Within this framework, a firm’s development strategy can generally proceed in two main directions: expanding existing business and activities, or diversifying into new businesses (Boyd et al., 1995). Expansion of existing business and activities typically entails seeking growth within existing product or service categories and markets, achievable through means such as market penetration, market development, or product development. On the other hand, diversifying into new businesses involves entering markets or launching products that differ from existing ones, generally constituting a riskier but potentially more lucrative strategic option.

Previous studies on the relationship between corporate strategies and performance are mainly focused on the competitive strategies proposed by Porter, namely differentiation and cost leadership strategies (Agyapong et al., 2016; Anwar & Hasnu, 2017; Gutiérrez-Broncano et al., 2024), manufacturing strategies (Budiono et al., 2021; Kharub et al., 2022; Theodorou & Florou, 2008), innovation strategy (Cheah et al., 2023; Kahn & Candi, 2021; Saleh & Al-Nimer, 2022), and market exploration and market exploitation strategies (Lisboa et al., 2013; Wang et al., 2023; Zhang et al., 2015). Although these studies have enriched the understanding of the strategic dimension, they are mostly focusing on a specific functional strategy or based on the context of large enterprises. In the context of the SMEs competing in international market, the existing research lacks an integrated framework to examine how classic corporate-level growth strategies impact their international performance systematically (Alkasim, Hilman, & Bohari, 2018; Alkasim, Hilman, Bohari, Abdullah, & Sallehddin, 2018; Gurcaylilar-Yenidogan & Aksoy, 2018; Qiu, 2022). Moreover, these studies are primarily concentrated in specific industries or regions (Adamu, 2020; Mang’unyi & Govender, 2019; Wanjiru & Gongera, 2015), lacking a general and systematic study on Chinese SMEs.

Basically, the existing research has limitations in the following two aspects. First of all, the focus on the international growth strategies of SMEs mostly remains at the level of whether to internationalize or how to enter, lacking a thorough analysis of the specific types of corporate-level growth strategies they adopt and the impact on their performance. Meanwhile, in the strategy-performance relationship, the existing literature has not fully incorporated the core characteristic of limited resources for SMEs to illustrate the internal logic behind the different performance outcomes resulting from different strategic choices based on RBV. Therefore, this study aims to critically address the gap and empirically examines the differential impacts of different growth strategies on the financial and strategic performance of resource-constrained SMEs in international market.

Particularly, the addressed research gap becomes prominent in the context of Chinese manufacturing SMEs. This setting is theoretically and practically important because these SMEs often face severe international competition while operating under strong resource constraints and institutional uncertainties. Compared with firms in developed economies, Chinese manufacturing SMEs are more likely to encounter limitations in financing, technological capability, and managerial resources when pursuing growth strategies (Xiao et al., 2026). These conditions make the performance consequences of different product-market strategies more visible and therefore provide a meaningful context for examining how growth strategies shape international performance. So, this study focuses on the direct effects of growth strategies on international performance to build a baseline understanding of their differentiated influences in Chinese manufacturing SMEs. To provide new evidence for the application of the RBV in the field of international growth strategies for SMEs, a questionnaire-based survey is used to answer the following questions:

RQ1: How do different product-market growth strategies (market penetration, market development, product development, diversification) affect the performance of SMEs in the international market?

RQ2: Do these strategies have different impacts on financial performance and strategic performance?

Theoretical Background and Hypotheses

Product-market growth strategy is formally articulated since the introduction of Ansoff’s product-market growth matrix in corporate strategic research area. It is the initial step for enterprises in making strategic decisions about where to conduct business (Ansoff, 1965). Product-market growth strategy refers to a set of business actions and practices firms could undertake to gain growth by leveraging existing or developing new businesses to expand the enterprise’s current or potential target markets and products (Chang, 2023; Sharifi et al., 2013). Accordingly, a firm’s growth strategy can generally proceed in two main directions: expanding existing business and activities, or diversifying into new businesses (Boyd et al., 1995). Expansion of existing business and activities typically entails seeking growth within existing product or service, achievable through means such as market penetration, market development, or product development. On the other hand, diversifying into new businesses involves entering markets or launching products that differ from existing ones.

Basically, this study constructs an analytical framework based on the RBV, with four types of growth strategies as the strategic dimensions and financial performance and strategic performance as the outcome dimensions. It examines the differentiated impacts of different strategic paths on enterprise performance. This study argues that the effects of different growth strategies on enterprise performance are not uniform. For SMEs, this difference can be understood in the context of the RBV, that is, different strategies have different requirements for enterprise resource investment, allocation, and synergy, which may lead to different performance results.

Market Penetration Strategy and SMEs’ Performance

Following Ansoff (1957), this study conceptualizes market penetration strategy as an approach aimed at increasing a company’s global sales revenue while maintaining its existing product and market strategies. This growth is primarily realized through boosting sales volume among existing users, and second, and through attracting new users through methods such as advertising, loyalty programs, promotional activities, and personal selling (Basu, 2014; Pearce et al., 2000). Critically, the strategy necessitates a profound understanding of the market and competition pattern, striving for growth opportunities without jeopardizing existing successes (Onyonyi, 2016). By either increasing the purchasing volume of existing customers or attracting new ones, SMEs can enhance their sales revenue (Basu, 2014; Ibrahim, 2022; Onyonyi, 2016). What’s more, a successful market penetration strategy demands a thorough understanding of the market and competitors (Ibrahim, 2022), enabling SMEs to more accurately position their products or services, thereby elevating their global competitiveness.

It is evident that market penetration helps SMEs to develop closer relationships with their global customers, and enhance the customer satisfaction and loyalty (Pearce et al., 2000). Through establishing stable relationships with a diversified customer base, SMEs can better comprehend the demands and preferences across different regional markets, and offer customized products and services, thereby improving market performance (Venetis & Ghauri, 2004). Accordingly, market penetration offers SMEs opportunities for cross-cultural and cross-market interactions, which could stimulate internal innovative activities (Coviello & Munro, 1997). Such cross-cultural and cross-market knowledge transfer is conducive to the improvement of products and services and may also lead to operational and managerial innovations, further elevating firm performance (Ferraris et al., 2021).

Accordingly, the market penetration strategy enhances customer relationships, improves customer satisfaction and loyalty (Pearce et al., 2000), promotes cross-cultural and cross-market knowledge flow, stimulates innovative activities (Coviello & Munro, 1997; Ferraris et al., 2021), and enables enterprises to acquire local resources and distribution networks (Meyer & Tran, 2006). These mechanisms are particularly important in the process of SMEs with limited resources, for they can help these enterprises establish a sustainable competitive advantage based on VRIN resources in their existing markets (Barney, 1991). Thus,

H1: Market penetration strategy has a positive impact on the performance of SMEs participating in international market.

Market Development Strategy and SMEs’ Performance

Based on the studies by Ansoff (1965), Basu (2014), and Osano (2019), this study defines market development strategy as a series of plans and actions aimed at propelling existing products or services into global markets by entering new geographical markets, adopting new distribution and marketing channels, and undertaking market segmentation and product improvements targeting new or existing customer groups. This strategy is considered high-risk, as it entails adapting to unknown markets and highly volatile foreign economic conditions (Muriithi & Waithaka, 2020). However, in developing countries, and particularly for SMEs, this is often seen as an effective choice for strategic growth (Bang & Joshi, 2010; Osano, 2019).

Through product improvements and developing new applications (Basu, 2014), new distribution channels, and pricing policies (Ansoff, 1965), businesses can meet the needs of more customers, thereby achieving a larger market share. Expansion in other geographic areas allows firms to mitigate the adverse effects of some markets or macroeconomic conditions (Osano, 2019). For instance, a more robust market in another area may offset a downturn in one region’s economy, reducing the turbulence in the firms’ overall performance. Osano (2019) also points out that by using quality products and services, competitive pricing, and expert market positioning, a brand created or improved by small and medium enterprises can gain global brand recognition and, hence, secure competitive advantage on a sustained basis.

According to Osano (2019), the market development strategy in SMEs is predominantly found in three directions, that is, market promotion, international market intelligence acquisition, and supply chain management. In market promotion, SMEs especially consider concentrated advertising, price competitiveness, and the quality of their products or services. Regarding international market intelligence, more emphasis is placed on market positioning and overseas competitive analysis. Finally, companies working with large enterprises may handle documentation, warehousing, and transportation aspects of logistics and distribution. Entering other cultures and market conditions requires innovation and learning (Muriithi & Waithaka, 2020). As inferred from Osano (2019) considerations regarding logistics and distribution, market development strategy requires companies to reconfigure their resources to adapt to varying market demands and conditions. Operating in multiple international markets could offer opportunities to integrate resources and capabilities from different markets, thus achieving higher operational efficiency and returns (Lu & Beamish, 2001). Concurrently, operating across multiple geographical markets allows companies to diversify their business risks (Basu, 2014).

Based on the above analysis, the positive impact of the market development strategy on the international performance of SMEs can be explained from two perspectives. From the perspective of the RBV, this strategy enables the enterprise to reallocate resources to meet diverse market demands, and enhances operational efficiency through cross-market resource integration, thereby forming an uncopiable core competence. From the perspective of risk management, the diversification of geographical markets can help to reduce the risks brought about by turbulence in a single market. For SMEs, although the market development strategy involves certain uncertainties, their investments in brand recognition, market intelligence, and supply chain collaboration can help achieve market expansion and performance improvement within the controllable risk. So,

H2: Market development strategy has a positive impact on the performance of SMEs participating in international market.

Product Development Strategy and SMEs’ Performance

According to the Uppsala Model, SMEs usually start their business activities in domestic markets and subsequently move on to international markets. During the early stages, market penetration is a common approach; this is because, at the early stages of internationalization, firms may not have the necessary resources and experience to pursue more complex internationalization strategies (Johanson & Vahlne, 1977). A firm that has successfully penetrated a particular market and acquired the necessary knowledge may start considering other more complicated methods, including product development. In this case, product development strategy means a chain of goal-directed managerial actions and decisions oriented toward creating and optimizing products through increasing R&D intensity, deepening understanding of the global customer’s needs, entering product categories before competitors, and enhancing user efficacy. Product innovation diversity is especially stressed in this approach to adapting to rapidly changing global customer needs and market segmentation (Basu, 2014; Liu et al., 2020).

Since SMEs in international markets face customers from different cultures and geographic locations, understanding and adapting to customer needs has become extremely important (Basu, 2014). Therefore, a thorough understanding of customer needs and proper R&D investments strongly relate to the “knowledge and commitment” principle of the Uppsala Model. Liu et al. (2020) further argue that in the changing market, the rapid and conspicuous changes occurring in customer needs and market segmentation bring into sharp focus the role of product development strategy in ensuring sustainable development in business. A maturely understanding of customers’ needs and satisfying these needs is what enhances market acceptance of products, according to Liu et al. (2020), and creates long-term customer relationships with brand equity. From the RBV, these complex resources are hard to acquire via the market transactional route, hence having long-term value for a firm. Then again, that tendency is in line with the basic idea of “psychic distance” in the Uppsala Model, whereby firms need to reduce psychic distance to respond more precisely to the needs of market.

Given that resources are often limited for SMEs in an international context, measures like product modification, new product development, and introduction of new designs, as described by Sigei and Jeptoo (2023), offer flexible resource allocation to meet various challenges. According to a study by Zhang (2022) on SMEs in Chinese manufacturing, emphasizing product and process innovation, ranging from developing new products that attract new customers, significant product development, to cost reductions and quality and flexibility improvements, can positively influence strategic performance.

The impact of product development strategies on the international performance of SMEs can be understood from two perspectives. According to the Uppsala model, the product development strategy helps to reduce the psychological distance between the enterprise and the target market by deepening the understanding of the customer demands, thereby improving the accuracy of market response. So, this strategy promotes the accumulation of market knowledge in the process of internationalization. According to the RBV, the customer insight ability, R&D capability, and social resources formed during the product developing process are difficult to imitate, and are important sources for SMEs to build sustainable competitive advantages. For resource-constrained SMEs, the product development strategy achieves rapid response to market changes through flexible resource allocation such as product improvement and design innovation, thereby enhancing international performance. Thus,

H3: Product development strategy has a positive impact on the performance of SMEs participating in international market.

Diversification Strategy and SMEs’ Performance

This study posits that diversification strategy is an approach undertaken by enterprises involving the development of new products, the introduction of new technologies, the implementation of new financial models and financing methods, as well as expansion into different geographical and/or industrial domains. From the perspectives of economies scale and scope (Markides & Williamson, 1994), costs (Lohwasser et al., 2019), and risk diversification, this strategy may have adverse effects on SMEs participating in international markets. First, diversification typically demands substantial resources and specialized expertise (Basu, 2014). For example, the success of the diversification strategy is due to the cost advantages that companies gain through economies of scale and scope (Lohwasser et al., 2019). But for resource-constrained SMEs, especially those newly entering international markets, implementing a diversification strategy may lead them to face more significant challenges. These SMEs may lack plentiful capital to undertake the investment required for diversification, such as market research, new product development, and marketing activities in new markets. Second, international diversification can elevate managerial complexity and coordination costs. SMEs often lack intricate management structures and dedicated international business teams, potentially resulting in information bottlenecks and inadequate execution. Furthermore, a diversification strategy may expose companies to multiple risks, including political, exchange rate, and cultural risks. These risk factors can be more challenging to manage for smaller-scale enterprises with limited resources (Ansoff, 1975).

So, the diversification strategy is the one that demands the most resources. It requires firms to simultaneously undertake horizontal market adaptation and vertical product innovation (Ansoff, 1965). The RBV clearly indicates that when the breadth of resources required by the strategy exceeds the depth and coordination capabilities of the enterprise itself, it will lead to the dilution of core competitiveness and a sharp increase in coordination costs (Grant, 1991). For most of SMEs, this double re-entry is with extremely high risks, which may undermine their short-term profitability and long-term strategic focus. Therefore, we assume:

H4: Diversification strategy has a negative impact on the performance of SMEs participating in international market.

Based on the above analyses, this study constructed a conceptual model as shown in Figure 1, aiming to systematically examine the differentiated impacts of product-market growth strategies on the international performance of manufacturing SMEs. In the model, the four growth strategies, that is, market penetration, market development, product development, and diversification strategy, were operationalized as four independent variables, and each was directly linked to the two dimensions of international performance, that is, financial performance and strategic performance.

Figure 1.

Conceptual model.

Ansoff (1965) proposed the product-market growth matrix, which highlights the fundamental differences in resource requirements, risk characteristics, and implementation conditions among various strategies. Testing each strategy independently helps clarify the differential mechanisms of their impact on different performance, avoiding the concealment of heterogeneity among strategies due to aggregation into a single concept. In terms of performance measurement, this study draws on the classic classification of performance multi-dimensionality proposed by Venkatraman and Ramanujam (1986). Financial performance is regarded as an indicator reflecting short-term economic returns, while strategic performance represents the improvement of a company’s long-term competitive position in the international market.

Methodology

Sample and Data Collection

This study is to assess how Chinese SMEs implement product-market growth strategy and the subsequent impact on their performance in international markets. In the pursuit of effectively validating the hypotheses of this study, convenience sampling was used to collect the empirical data. In conducting the sampling, this study focuses on the manufacturing sector of SMEs in China. In accordance with the Chinese SME classification standards, we have chosen SMEs with an employee count ranging less than 1,000 as our research sample.

A survey questionnaire was conducted for the Chinese SMEs by engaging the services of SurveyPlus, a professional survey firm in China. The respondents were required to be mid-to-senior-level managers within their companies. Basically, the verbal informed consent was obtained from all participants before their participation. Participation was voluntary, and participants were informed of the purpose, procedure, and duration of the study, as well as their right to withdraw at any time. All responses were anonymized and used for research purposes only. Confidentiality of all data was maintained throughout the study strictly. The risk of harm to participants was minimal, as the study involved only an anonymous questionnaire with no sensitive or personally identifiable information collected. The potential benefits of this research, that is, advancing understanding of SME international growth strategies, were considered to outweigh the negligible risks to participants.

All dependent and independent variables in the survey were measured using a Likert-type 5-point rating scale, where 1 represents a very low degree of alignment (i.e., strongly disagree), while 5 indicates a very high degree of alignment (i.e., strongly agree). In total, 420 questionnaires were collected, and after eliminating invalid responses due to factors such as non-mid-to-senior-level managerial respondents, non-SMEs, or missing key variables, 276 valid questionnaires were obtained, resulting in an effective recovery rate of 65.71%.

Measurement Instrument

Independent Variables

Basu (2014) provides a framework for product-market growth strategy and actions, with particular emphasis on the “market development strategy” section, which encompasses actions like modifying existing products to meet the needs of new customers, focusing on new packaging, geographical expansion, new distribution channels, and market segmentation with new pricing strategies, among others. Building upon this framework, Budiati et al. (2022) adapted these actions and created a scale for measuring the market development strategy. Specifically, the scale focuses on “modifying existing products to fit new uses for new customers,”“paying attention to new packaging for new segment markets,”“new geographical expansion,”“new distribution channels,” and “market segmentation with new pricing strategies.” In this study, we construct scales for measuring product-market growth strategy by following the adaptation of Budiati et al. (2022) from Basu (2014) who proposed the strategic actions, and systematically adapt them for the four primary product-market growth strategies.

Dependent Variables

The performance in international market encompasses both economic and strategic performance, which provides a comprehensive understanding of firms’ performance in international market (Chung & Kuo, 2018; Jeong, 2016; Kim & Pennington-Gray, 2017). Strategic performance is also recommended to be combined with economic performance when measuring a firm’s export performance (Cavusgil & Zou, 1994). Basically, this study adapts measurement scales from Mabenge et al. (2020) and Styles (1998) to testing the financial and strategic performance. Mabenge et al. (2020) particularly emphasize the importance of financial indicators such as return on investment, net profit margin, and gross profit margin. These indicators are crucial for assessing a company’s financial health and profitability. Styles (1998), on the other hand, focuses more on the measurement of strategic performance, such as customer satisfaction, market share, and brand awareness. Based on the research of these two authors, we have synthesized their key indicators and made appropriate adjustments and adaptations according to the specific needs and context of this study.

Control Variables

To ensure the robustness of research results and minimize potential biases and errors, this study selects multiple control variables for adjustment. It considers firm size and age, which are measured by the number of employees and the number of years since establishment, respectively. Ownership forms are also crucial, especially in the Chinese context where state-owned and non-state-owned firms differ in internationalization processes (Zhang et al., 2016). Additionally, the industry sector is included because consumer and industrial goods companies face different market and customer demands (Sul & Lee, 2020). Other control variables such as marketing and R&D intensity are important too, enhancing demand and long-term competitiveness, respectively (Aksoy et al., 2024; Benfratello et al., 2022; Peters & Roberts, 2022). The study further accounts for internationalization levels, including the duration and breadth of a firm’s foreign trade, reflecting their market experience and adaptability. Finally, considering the turbulence of the international market environment, technological turbulence, market turbulence, and the intensity of industry competition may all influence firms’ strategic choices. Regarding environmental turbulence, we selected variables based on Filatotchev et al. (2017), whose contributions in this field provided valuable references.

Empirical Analysis

Descriptive Statistics

Upon the completion of the questionnaire collection, we utilized the statistical analysis software SPSS 29.0 and AMOS 26.0 to analyze the data of 276 valid questionnaires. The specific statistical data are presented in Table 1.

Table 1.

Sample Demographic Profile (N = 276).

Variables	Items	Frequency	%
Executives
Position	CEO/owner	77	27.9
	Vice president	33	12.0
	Director	166	60.1
Education	Associate or below	46	16.7
	Bachelor	175	63.4
	Master	47	17.0
	Doctoral	8	2.9
Firms
Firm age (years)	Less than 5	11	4.0
	6–10	55	19.9
	11–15	68	24.7
	More than 16	142	51.5
Firm size (employees)	Less than 50	23	8.3
	51–100	24	8.7
	101–300	70	25.4
	More than 300	159	57.6
Type (goods)	Consumer	98	35.5
Type (goods)	Industrial	178	64.5
Ownership	State owned	53	19.2
Ownership	Non–state owned	223	80.8
International experience (years)	Less than 5	58	20.9
	6–10	99	35.9
	11–15	51	18.5
	More than 16	68	24.8

Common Method Bias

To quantitatively assess the impact of CMB, we employed Harman’s Single Factor Test. This method allows for the detection of whether a single factor or a few factors dominate the data, thereby revealing the presence of CMB (Podsakoff et al., 2003). During the principal component analysis, we did not rotate the factors, allowing for a more direct observation of the variance percentage explained by the largest factor. The results show that the variance explained by the first principal component is 23.438%, significantly lower than the standard threshold commonly used to judge the significance of CMB (usually 50% or higher); furthermore, all factors together explain a maximum variance of 77.06%. Therefore, it can be concluded that the data in this study are not severely affected by CMB.

Reliability and Validity Analysis

To ensure the reliability of each construct, it is vital to refine the original scale. And the process is usually based on two principles, i.e., deleting items with corrected total item correlation values less than 0.5 and deleting items if their removal increases the Cronbach’s α. So, after the analysis, this study simplified some variable items from the original scale. For example, the construct of market penetration strategy was reduced from five items to three, where MPS 2 and MPS 4 were dropped, and product development strategy was reduced from four items to three items where PDS 3 was dropped. Namely, these items exhibited relatively low outer loadings, making them appropriate candidates for removal (Hair et al., 2018). By eliminating these items, this study achieved both convergent validity and discriminant validity.

As shown in Table 2, the factor loadings of all scale items are above 0.7, indicating strong correlations with their respective constructs (Fornell, 1982), implying good representativeness of the scale items for the constructs. The Cronbach’s α coefficients for all constructs exceed the threshold of 0.7, indicating high internal consistency (Hair et al., 2018; Nunnally & Bernstein, 1994), suggesting good consistency among scale items when measuring the same constructs. Furthermore, the composite reliability values for all constructs in this table exceed the standard of 0.7 (Fornell & Larcker, 1981), and the average variance extracted values satisfy the criterion of greater than 0.5 (Hair et al., 2018), indicating good convergent validity.

Table 2.

Measurement Model Results.

Construct	Item	Factor loading	Cronbach’s α	CR	AVE
Market penetration	MPS1	0.841	.853	0.858	0.669
	MPS3	0.730
	MPS5	0.875
Product development	PDS1	0.842	.888	0.889	0.727
	PDS2	0.859
	PDS4	0.857
Market development	MDS1	0.718	.878	0.879	0.646
	MDS2	0.841
	MDS3	0.807
	MDS4	0.842
Diversification	DVS1	0.856	.922	0.922	0.747
	DVS2	0.882
	DVS3	0.900
	DVS4	0.816
Financial performance	FP1	0.796	.868	0.869	0.625
	FP2	0.838
	FP3	0.788
	FP5	0.736
Strategic performance	SP1	0.811	.936	0.937	0.749
	SP2	0.870
	SP3	0.923
	SP4	0.896
	SP6	0.823
Technological turbulence	TT1	0.828	.832	0.840	0.639
	TT2	0.885
	TT3	0.670
Market turbulence	MT1	0.792	.864	0.866	0.618
	MT2	0.800
	MT3	0.777
	MT4	0.775
Competitive intensity	CI2	0.820	.804	0.804	0.579
	CI3	0.753
	CI4	0.706

Note. CR = composite reliability; AVE = average variance extracted.

Furthermore, CFA was employed to validate the formal questionnaire via AMOS 26.0, and the results indicated that the model fit indices reached acceptable levels. These indices include Chi square/degrees of freedom = 1.224, goodness-of-fit index (GFI) = 0.891, adjusted goodness-of-fit index (AGFI) = 0.867, normed fit index (NFI) = 0.908, comparative fit index (CFI) = 0.981, standardized root mean square residual (RMR) = 0.055, and root mean square error of approximation (RMSEA) = 0.029. Overall, our CFA results demonstrate that the formal questionnaire utilized in this study possesses good construct validity.

Descriptive Statistics and Correlation Analysis

Before hypothesis testing, this study utilized SPSS software to perform necessary descriptive statistical analyses on the basic characteristics of the data. From the results (see Table 3), it is evident that the means of all variables fall within reasonable ranges.

Table 3.

Correlation Matrix and Descriptive Statistics.

Variable	Mean	S.D.	1	2	3	4	5	6	7	8	9
1. Size^a	5.80	1.06
2. Age^a	2.79	0.57	0.36**
3. Ownership^b	0.81	0.39	−0.06	−0.18**
4. Type^c	0.36	0.48	−0.09	−0.12	−0.10
5. RD	0.22	0.13	0.05	0.06	−0.18**	−0.13*
6. MKT_INT	0.21	0.13	0.03	0.00	−0.22**	0.11	0.39**
7. INT_EXP^a	2.29	0.64	0.29**	0.63**	0.00	−0.18**	0.06	−0.02
8. INT_SCA	2.14	0.86	0.11	0.12	0.07	−0.04	−0.12*	−0.10	0.20**
9. INT_INT	0.53	0.23	0.04	0.04	0.18**	0.03	0.07	0.06	0.23**	0.08
10. TT	3.73	0.90	−0.09	0.00	−0.10	0.16**	0.05	0.09	−0.01	−0.05	0.07
11. MT	3.89	0.87	0.00	0.04	−0.05	0.09	0.17**	0.12*	0.07	−0.18**	−0.02
12. CI	4.01	0.80	0.11	0.02	0.13*	0.02	0.11	0.14*	0.07	0.01	−0.10
13. MPS	3.87	0.93	0.20**	0.10	−0.07	0.01	0.13*	0.19**	0.07	0.01	−0.01
14. PDS	3.18	1.27	−0.17**	−0.08	−0.02	0.04	0.01	−0.09	−0.08	0.05	−0.06
15. MDS	3.56	1.04	0.08	0.02	−0.08	0.04	0.12	0.16**	0.02	−0.03	0.03
16. DVS	2.94	1.22	−0.07	−0.14*	0.03	0.05	−0.05	−0.14*	−0.10	0.02	−0.04
17. FP	3.04	1.04	0.08	0.04	−0.03	0.02	0.08	0.15*	−0.02	−0.13*	−0.04
18. SP	3.57	1.06	0.01	0.05	−0.12	0.03	0.16**	0.07	0.02	−0.05	−0.06
Variable	Mean	S.D.	10	11	12	13	14	15	16	17	18
11. MT	3.89	0.87	0.26**
12. CI	4.01	0.80	0.19**	0.29**
13. MPS	3.87	0.93	0.07	0.06	0.19**
14. PDS	3.18	1.27	−0.05	−0.13*	−0.15*	−0.31**
15. MDS	3.56	1.04	0.159**	0.162**	0.16*	0.47**	−0.34**
16. DVS	2.94	1.22	−0.07	−0.10	−0.02	−0.32**	0.56**	−0.36**
17. FP	3.04	1.04	0.03	0.15*	0.21**	0.41**	−0.43**	0.46**	−0.44**
18. SP	3.57	1.06	0.01	−0.05	−0.01	0.20**	0.11	−0.12*	−0.04	0.05

Note. Size = firm size; Age = firm age; Ownership = firm ownership; Type = industrial type; RD = R&D intensity; MKT_INT = marketing intensity; INT_EXP = international experience; INT_SCA = international scale; INT_INT = international intensity; TT = technological turbulence; MT = market turbulence; CI = competitive intensity; MPS = market penetration strategy; PDS = product development strategy; MDS = market development strategy; DVS = diversification strategy; FP = financial performance; SP = strategic performance.

The natural logarithm.

A dummy variable (0_state-owned, 1_non-state-owned)/

A dummy variable (0_industrial goods; 1_consumer goods).

p < .05. **p < .01 (N = 276).

Hypothesis Testing

This study employed SPSS 29.0 to conduct hierarchical linear regression to test the research hypotheses. Table 4 presents the results of regression analysis aims at examining the direct effects of multiple predictor variables on two dependent variables: financial and strategic performance. Regarding the analysis of financial performance (Models 1 to 2), market penetration (B = 0.186, p < 0.01) and market development (B = 0.232, p < 0.001) exhibit positive effects on financial performance. Conversely, product development (B = −0.146, p < 0.01) and diversification strategy (B = −0.168, p < 0.01) are negatively associated with financial performance. In the analysis of strategic performance (Models 3 to 4), market penetration (B = 0.366, p < 0.001) and product development (B = 0.141, p < 0.05) demonstrate strong positive effects. However, market development (B = −0.28, p < 0.001) and diversification strategy (B = −0.113, p < 0.1) present negative effects.

Table 4.

Regression Analysis Result.

	DV: FP		DV: SP
Variables	Model 1	Model 2	Model 3	Model 4
Control variable
Intercept	1.578* (0.611)	2.445*** (0.615)	3.883*** (0.64)	3.373*** (0.734)
Size	0.059 (0.063)	−0.02 (0.054)	−0.005 (0.066)	−0.015 (0.064)
Age	0.138 (0.147)	0.084 (0.123)	0.038 (0.154)	−0.01 (0.147)
Ownership	−0.02 (0.174)	0.004 (0.145)	−0.182 (0.182)	−0.197 (0.173)
Type	−0.02 (0.137)	0.036 (0.114)	0.129 (0.143)	0.117 (0.136)
RD	−0.152 (0.533)	−0.06 (0.446)	1.377* (0.558)	1.208* (0.533)
MKT_INT	0.907 (0.524)	0.15 (0.441)	−0.089 (0.548)	−0.251 (0.527)
INT_EXP	−0.138 (0.133)	−0.132 (0.11)	0.061 (0.139)	0.057 (0.132)
INT_SCA	−0.123 (0.075)	−0.108 (0.063)	−0.057 (0.079)	−0.068 (0.075)
INT_INT	0.01 (0.289)	−0.084 (0.241)	−0.307 (0.302)	−0.2 (0.287)
TT	−0.035 (0.073)	−0.09 (0.061)	0.011 (0.076)	0.024 (0.073)
MT	0.103 (0.077)	0.042 (0.065)	−0.123 (0.081)	−0.075 (0.077)
CI	0.224** (0.085)	0.15* (0.072)	0.001 (0.088)	0.002 (0.085)
Predictors
MPS		0.186** (0.066)		0.366*** (0.078)
PDS		−0.146** (0.051)		0.141* (0.061)
MDS		0.232*** (0.059)		−0.28*** (0.07)
DVS		−0.168** (0.053)		−0.113^† (0.063)
R ²	.087	.38	.048	.16
△R²	.087	.294	.048	.112
Adjusted R²	.045	.342	.004	.108
F value	2.082*	9.938***	1.098	3.075***

^†p < .1. ^*p < .05. **p < .01. ***p < .001.

Robustness Test

To ensure the robustness of the conclusion, we further conducted hypothesis testing using the SEM in the AMOS 26.0 (Batra & Dey, 2019). As shown in Table 5, the directions and significance levels of all path coefficients are consistent with the results of the regression analysis, thereby demonstrating the robustness of the conclusion of this study.

Table 5.

Path Coefficients by SEM.

Path			Std. Beta	B	S.E.	C.R.	p
MPS	→	FP	0.188	0.201	0.076	2.627	.009
PDS	→	FP	−0.188	−0.150	0.062	−2.428	.015
MDS	→	FP	0.278	0.255	0.067	3.782	***
DVS	→	FP	−0.183	−0.167	0.069	−2.409	.016
MPS	→	SP	0.418	0.485	0.095	5.081	***
PDS	→	SP	0.244	0.212	0.075	2.825	.005
MDS	→	SP	−0.343	−0.342	0.082	−4.166	***
DVS	→	SP	−0.192	−0.191	0.084	−2.278	.023

Note. Std. Beta represents the standardized coefficient, while B denotes the unstandardized coefficient. S.E. stands for standard error, and C.R. represents the critical ratio, which is the estimate divided by its standard error, corresponding to t-values.

***

p < .001

Based on the structure of the Ansoff’s growth matrix, we have annotated the impacts of various growth strategies on financial and strategic performance. The updated matrix extends the dimensions of economic and strategic performance (as presented in Figure 2). It introduces two new evaluation scales, i.e., the international financial performance which is placed at the horizontal axis, and the international strategic performance which is at the vertical axis. Each scale is segmented into “high” and “low” regions, delineated by dashed lines. Financial performance measures the tangible outcomes of the growth strategies, where “high” denotes positive economic impacts such as revenue growth and improved profit margins, and “low” points to potential financial burdens or decreased income. Strategic performance evaluates the effectiveness of these strategies in achieving long-term competitive advantages and enhancing market position, with “high” suggesting effective promotion of the company’s strategic objectives and “low” highlighting deficiencies in supporting strategic development. This multidimensional approach transforms the traditional Ansoff’s matrix from a simple growth strategy classification tool into a comprehensive strategic analysis framework where one can find how these choices influence both economic and strategic performance. And it provides more holistic decision support for the strategic planning of SMEs.

Figure 2.

Empirical analysis matrix of strategies and SME performance impact.

Discussions

Hypotheses H1 suggests that global market penetration strategy positively impact SMEs’ performance, and the empirical results support this view, showing significant positive effects on financial and strategic performance. Based on the RBV, the key to the success of SMEs in international market lies in the efficient allocation of their limited and scarce resources (Barney, 1991). The market penetration strategy requires SMEs to deepen their operations in existing international markets. This strategy prompts firms to concentrate their resources such as management attention, market knowledge, and customer relationships highly on familiar areas. The centralized allocation of resources directly leads to two performance growth. In terms of financial performance, SMEs reduce unit costs and enhance income stability through repetitive transactions and customer loyalty. In terms of strategic performance, it builds unassimilable market barriers through deepening local integration and brand recognition (Alkasim et al., 2017; Meyer & Tran, 2006; Zhang et al., 2021). Therefore, the penetration strategy actively creates high performance through the mechanism of resource concentration.

Meanwhile, this study indicates that the market development strategy has a positive impact on financial performance, but a negative impact on strategic performance. Positively, entering new markets can directly bring in new revenue, thereby enhancing short-term financial performance. However, this strategy forces SMEs to divert some of their resources away from their existing core businesses to deal with the institutional, cultural, and competitive uncertainties of new markets (Anggadwita et al., 2023; Zhou, 2025). For SMEs with limited resources, this diversion leads to insufficient investment in the development of existing markets and the long-term capacity building. Therefore, the market development strategy encompasses both the opposite causal forces of finance generation and resource dilution (Younis & Karmowska, 2025), and its effect is reflected in the divergence between financial and strategic performance.

Additionally, the product development strategy has a negative impact on financial performance, but it has a positive effect on strategic performance. In the short term, this strategy requires SMEs to make substantial and costly investments in research and innovation (Mishina et al., 2004). These investments directly consume current profits and put pressure on financial performance. However, this investment is aimed at building new and differentiated product capabilities and intellectual property rights, which will translate into future competitive advantages and pricing power (Agyapong et al., 2016).

The diversification strategy has a significant negative impact on both financial performance and strategic performance. This result indicates that in the context of SMEs, diversification expansion may not lead to the expected performance improvement; instead, it may increase the resource allocation pressure of the enterprise (Arte & Larimo, 2022). This result is in accord with the fundamental point of the RBV, which states that when an enterprise’s strategic expansion exceeds the boundaries of its existing resource base and management capabilities, its performance is likely to be inhibited (Barney, 1991). Diversification for SMEs usually means that they need to allocate their limited resources simultaneously to new business development, market adaptation and organizational coordination. However, such behavior is likely to lead to the dispersion of the core resources of SMEs and increase management costs (Lindlbauer et al., 2025). In this situation, it is difficult for SMEs to quickly form a competitive advantage in new fields. And they may weaken the resource investment and competitive foundation of the existing business, which will adversely affect financial and strategic performance. Therefore, this study believes that the negative effect of diversification strategy reflects to a certain extent the possible mismatch between the resource base and strategic expansion of SMEs.

Implications

Theoretical Implications

First, this study provides new empirical evidence supporting the RBV in its understanding of firm performance and how a firm’s resources or capabilities influence the relationship between strategic choices and performance. In more detail, the positive effect on financial performance of both market penetration and market development means that these strategies are coherent with the current resources and capabilities of the firm; therefore, they have a positive effect on leveraging the firm’s resources.

It is consistent with the RBV, which holds that firms can develop a better market position and superior financial returns by exploiting and using their existing resources (Morgan et al., 2004; Safari & Saleh, 2020). Partly, the effectiveness of these strategies would come from the property of flexibility of resources, that is, how a firm’s underlying or currently held resources and abilities are effectively used to improve its market share in current markets or to move into new market sectors (Furr & Eisenhardt, 2021). Contrarily, the negative impacts of product development and diversification strategies on financial performance are evidence of misaligned resource allocation. Both methods require corporations to either acquire new resources or restructure existing ones to generate new products or enter new business lines. When newly invested resources are incompatible with the organization’s existing resources and competencies, or when the firm has not developed the ability to deal with that kind of new resource, good immediate financial returns are unlikely to be seen. That may lead to economic problems. That inevitably raises one most important theoretical extension: the RBV shall not focus only on the resources per se but also on the appropriateness and timeliness of such resources.

Meanwhile, this study has introduced a theoretical dimension that deserves further investigation, that is the differentiation between strategic and financial performance. Earlier theories focused on measuring economic performance with minimal distinction among the different performance impacts. This study specifically points out that different product-market growth strategies may yield distinctly different financial and strategic performance effects. It carries fundamental implications for the theoretical way that has been conceived in terms of performance and strategic choice, respectively, in practice. It encourages SMEs to utilize the product-market growth strategies more pointedly.

Overall, this study extends the application of the Ansoff’s matrix, provides a new perspective on balancing strategies, and reveals the multidimensional impact of growth strategies. The Ansoff’s matrix has traditionally focused on describing different growth strategies. Few studies have explored the impact of these strategies on various performance metrics. This study fills this gap and provides a more comprehensive theoretical framework. It proves that the product-market growth strategy is not just a tool of strategic choice but also an analytical framework for learning the impact of business performance.

Managerial Implications

Market penetration and market development strategies are particularly significant for businesses committed to improving financial performance in international markets. That means managers should consider strengthening relations with existing customers, expanding into new geographic areas, increasing sales, and increasing market share through the company’s current resources and capabilities. While developing the strategies, they must nevertheless consider the risks of over expansion. In particular, even though the diversification strategy may gain new market opportunities (Schommer et al., 2019), it also may lead to the dispersion of resources, thus gradually weakening a firm’s competitiveness. SMEs, therefore, need to focus on concentrated operations by allocating resources towards developing and enhancing their core competencies through specialization.

The importance of product development strategy is evident for firms interested in long-term strategic positioning and competitive advantage. Although resource investment might have a negative influence on financial performance (Akbar et al., 2021; Yoo et al., 2022), managers have to recognize its long-term value of enhancing innovative capacity and adapting to changes in the market. That requires the managers to focus on long-term strategic investment by properly balancing it with short-term financial considerations and using effective resource allocation techniques that reduce potential resource conflict during innovation. By so doing, they place the firm in a vantage position not only to manage the current market challenges but also to position it for future opportunities.

Targeting the leading industry is the most crucial way an SME can find success and long-term development in globalization. After a business has reached maturity and its market share in an existing market is stable, it will begin to seek new markets for its existing products (Hussain et al., 2013). That also underscores the essence of firms ensuring they achieve their market penetration goals in a given international market segment before expanding. Moreover, achieving market penetration goals would allow SMEs to gain knowledge, information, and experience about the market. Those SMEs with leading edges in the prime industry in international market competition will enhance their competitiveness and professionalism, optimize resource allocation, create a brand effect, and improve their adaptability to the market.

Conclusions

Contributions

Basically, this study focuses on the direct impact of growth strategies on performance, and further reveals the intrinsic connection between strategic choices, resource conditions and multi-dimensional performance from the perspective of RBV.

First, based on the “strategy-performance” research paradigm by Zhang et al. (2021), this study proposes a framework that contains various product-market growth strategy factors to explain Chinese SMEs’ performance in international market. In particular, the relationship between strategy and performance is explored by borrowing from and synthesizing the RBV and the Uppsala model theory. And unlike the research approach that treats enterprise performance as a single outcome variable, this study distinguishes between the two dimensions of financial performance and strategic performance. The findings show that different growth strategies do not affect all aspects of performance in the same way, and that some strategies may even involve trade-offs across performance dimensions. That suggests the outcomes of growth strategies are multidimensional and varied.

Besides, this study provides empirical evidence from SMEs in China’s emerging market regarding the relationship between growth strategies and performance. Most existing studies on growth strategies is based on samples from developed countries or large companies, and there is relatively limited attention paid to the applicability of these strategies in the strategic choices of SMEs in emerging market contexts. This study takes Chinese manufacturing SMEs as the research object, revealing that in the context of intensified competition, and concurrent resource constraints, the performance effects of different growth strategies may show different characteristics from those of existing studies. Thereby, this study expands the explanatory boundaries of strategic theories in the context of SMEs in emerging markets.

Furthermore, based on the empirical results, this study expands the traditional Ansoff’s matrix and provides a new tool for SMEs to evaluate their performance on growth strategies from a strategic perspective. Through this matrix, firms can more clearly identify the specific impacts of various growth strategies on financial and strategic performance, and then realize more precise and efficient strategic planning.

Limitations and Suggestions for Future Study

While this study provides insights into the relationship between four growth strategies and firm performance, several limitations should be acknowledged. First, the mechanisms linking these strategies to performance outcomes may not have been fully explored, leaving room for unexamined mediating or moderating factors at the organizational level. Additionally, the reliance on convenience sampling and the relatively narrow scope of the dataset may limit the generalizability of the findings. The sample size, while sufficient for preliminary analysis, could be expanded to capture a more diverse range of firm contexts and strengthen statistical validity.

Although this study adopts a direct-effects model to capture the overall relationship between growth strategies and performance, to address these gaps, future studies could connect strategies to performance by investigating other firm-level mechanisms, such as organizational structures, managerial practices, or resource allocation dynamics, that might mediate or moderate these relationships. It also indicates that future research should adopt more diversified measures of performance when examining strategic effects, so as to avoid overly broad judgments about the value of a given strategy. What’s more, employing strict random sampling procedures across SMEs would enhance representativeness and reduce selection bias. Expanding the sample size, particularly to include SMEs from varying economic environments or developmental stages, could also improve the quality of conclusions.

Footnotes

ORCID iDs

Chun-Liang Yao

Li-Yuan Wang

Ethical Considerations

This study was approved by the Guangzhou College of Commerce Research Ethics Committee (approval no. 2025-012) on December 19, 2025.

Consent to Participate

Verbal informed consent was obtained from all participants prior to their participation. Participation was voluntary, and all respondents were informed of the purpose of the study. All responses were anonymous and used for research purposes only.

Author Contributions

Yao, C.L.: Conceptualization, methodology, software, formal analysis, data curation, visualization, writing – original draft preparation, writing – review & editing, validation, and project administration. Wang, L.Y.: Conceptualization, investigation, resources, funding acquisition, validation, and partial project administration.

Funding

The authors received no financial support for the research, authorship, and/or publication of this article.

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Data Availability Statement

The supporting data for this research’s conclusions can be obtained from the corresponding author, subject to a reasonable request.

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