Configuring Internationalisation Readiness: An Fsqca Study of Sabah’s Smes

Configuring Internationalisation Readiness: An Fsqca Study of Sabah’s Smes

Jaratin Lily., Chew Tze Cheng^*., Debbra Toria Nipo., Suddin Lada., Saizal Pinjaman

Faculty of Business, Economics and Accountancy, Universiti Malaysia Sabah, Jalan UMS, 88400, Kota Kinabalu, Sabah, Malaysia

*Corresponding Author

DOI: https://dx.doi.org/10.47772/IJRISS.2025.908000540

Received: 16 August 2025; Accepted: 23 August 2025; Published: 19 September 2025

ABSTRACT

This study investigates the causal conditions that shape high readiness for internationalisation among small and medium-sized enterprises (SMEs) in Sabah, Malaysia. Drawing on the Dynamic Capabilities Theory, Resource-Based View, Institutional Theory, and Configuration Theory, the research applies fuzzy-set Qualitative Comparative Analysis (fsQCA) to data from 44 SMEs engaged in or preparing for cross-border activities. Five conditions, namely market uncertainty, firm resources, risk perception, international knowledge, and government support, were examined through necessity and sufficiency analyses. The necessity analysis identified government support, firm resources, and international knowledge as quasi-necessary conditions, consistently present in most high-readiness cases. The configurational results revealed six equifinal pathways to readiness, clustered into three strategic models: (1) Institutional Compensation Models, where government support offsets shortfalls in resources and international knowledge; (2) Capability-Driven Independence Models, where strong internal capacities lead high internationalisation readiness without institutional reliance; and (3) an Ideal Synergy Model, where all enabling factors align to produce the most robust internationalisation readiness. The findings highlight the context-dependent role of both the presence and absence of conditions, demonstrating that multiple, asymmetrical routes can achieve the same outcome. The study advances theoretical understanding by integrating institutional and capability perspectives within a configurational framework. It provides actionable insights for policymakers designing targeted support programmes and for managers seeking to strengthen their firms’ internationalisation readiness. Limitations related to sample size, regional focus, and cross-sectional design are acknowledged, with recommendations for longitudinal, comparative, and technology-integrated extensions in future research.

Keywords: internationalisation readiness, fsQCA, SMEs, Configuration analysis, Sabah

INTRODUCTION

Small and medium-sized enterprises (SMEs) are central to economic growth, job creation, and innovation in emerging economies. In 2024, Malaysia’s MSMEs recorded a GDP growth of 5.8%, generating RM652.4 billion in value added and contributing 39.5% to the nation’s GDP. This growth outpaced Malaysia’s overall GDP increase of 5.1% for the same year. By comparison, MSMEs’ GDP expanded by 4.9% in 2023, amounting to RM616.6 billion in value added (Department of Statistics Malaysia, 2025).

Sabahan SMEs face structural and institutional barriers that limit global expansion, including underdeveloped infrastructure, low digital adoption, and weaker institutional capacity. Ambad et al. (2020) examined growth challenges faced by SMEs in Sabah, Malaysia, through interviews with 11 owner-managers. The study identified five key barriers: financial constraints, human resource shortages, weak marketing strategies, inadequate facilities, and unreliable suppliers. These findings highlight region-specific constraints that may limit SMEs’ competitiveness and readiness for internationalisation.

While much of the Malaysian SME literature focuses on export performance, research on internationalisation readiness is lacking, particularly in examining how businesses from less-developed states are prepared to go international (Rosnan et al., 2018). Existing studies identify a variety of readiness drivers, including firm-level resources, internationalisation knowledge, market orientation, risk perception, and institutional support (Falahat et al., 2020; Wong & Kee, 2022). However, most of these studies adopt linear models, assuming uniform cause–and–effect relationships. The literature often overlooks the heterogeneity of SMEs, where different configurations of internal capabilities and external conditions can produce similar readiness outcomes (Ahmad et al., 2021).

To address this gap, this study applies fuzzy-set Qualitative Comparative Analysis (fsQCA) to explore how multiple interacting conditions jointly form internationalisation readiness among Sabahan SMEs. Five conditions are examined, including firm resources, internationalisation knowledge, risk perception, market uncertainty, and government support, drawing on Dynamic Capabilities Theory (Teece et al., 1997) and Institutional Theory (Scott, 1995). The configurational approach captures causal complexity, allowing for the identification of equifinal pathways, which are multiple distinct combinations that lead to the same outcome (Fiss, 2011).

This study makes three key contributions. First, it extends internationalisation research into an underexplored geographical context, particularly Sabah, thereby enriching the understanding of SMEs in this region. Second, it advances methodology by demonstrating fsQCA’s ability to uncover asymmetrical, multi-causal pathways to readiness. Third, it offers actionable insights for policymakers and development agencies to tailor interventions based on differentiated readiness profiles, fostering more inclusive participation in global trade (Hasim et al., 2018; Saad & Idris, 2014).

This article is structured into five sections: an introduction outlining the research background and objectives; a literature review and theoretical framework discussing key concepts and prior studies; a methodology section detailing data collection and analysis; a findings and discussion section presenting results and interpretations; and a conclusion summarising contributions, implications, and future research directions.

LITERATURE REVIEW AND THEORETICAL FRAMEWORK

Dynamic Capabilities Theory (DCT)

The dynamic capabilities theory (DCT) expounds on the resource-based view (RBV) by emphasising the processes through which companies rearrange their assets to adapt to environmental volatility. Where the RBV focuses on the ownership of resources, the DCT questions the deployment of resources, how organisations identify opportunities, utilise them, and adjust operations accordingly. The DCT is particularly relevant in the context of small and medium-sized enterprise (SME) internationalisation since these organisations rarely have the excess resources that large organisations do. Therefore, they are forced to rely on agile strategic processes, proactive learning, and quick deployment of assets to manage the complexity of external markets. Dynamic capabilities’ core dimensions, such as sensing, seizing, and reconfiguring, can be directly applied to readiness. Sensing refers to the ability to identify new international opportunities and threats by market scanning, competitor monitoring, and customer feedback; seizing involves mobilising resources to take advantage of opportunities, such as raising finance, gaining foreign-market expertise, or forming partnerships; and reconfiguring involves realigning organisational structures, processes and human capital to remain competitive in new markets. As empirical studies confirm, SMEs that exhibit greater maturity in the integration of dynamic capabilities, especially in the areas of knowledge absorption and resource reallocation, are much more prepared to overcome the obstacles of internationalisation (Weaven et al., 2021; Rhaiem & Doloreux, 2024).

Institutional Theory

Institutional Theory argues that organisational behaviour is not only influenced by considerations of efficiency but also by compliance with existing institutional norms, rules and belief systems (Scott, 1995). It contains home-country institutional systems, including export promotion programs and trade laws, and host-country settings, including law and culture. Institutional forces can either be a constraint or an enabler to SMEs. Those firms that lack capabilities can benefit from the government support, including financial incentives, export facilitation services, and training, which decrease the perceived risks of foreign market entry (Falahat et al., 2020; Looi & Klobas, 2020). On the other hand, inappropriate institutional conditions may exacerbate uncertainty and discourage firms from engaging in international business (Dekel-Dachs et al., 2021). The Institutional Theory applies to Sabah, where SMEs often face institutional gaps, a lack of market-supporting infrastructure, information systems, and policy frameworks that reduce their competitiveness (Ambad et al., 2020; Harrison et al., 2018). Thus, institutional interventions may play a critical role in closing the readiness gap, and government support is not only beneficial but, in some cases, essential to global involvement.

Key Conditions for Internationalisation Readiness

Firm Resources

From the perspective of DCT, a firm’s ability to integrate, build, and reconfigure internal and external competencies influences its capacity to compete in ever-changing environments. In the context of internationalisation, core firm resources such as financial stability, skilled labour, managerial expertise, and operational infrastructure are foundational to developing such dynamic capabilities (Vuorio & Torkkeli, 2022). Tangible resources, such as firm resources like financing and production capacity, facilitated the scaling of operations. However, it is the intangible capabilities, such as international experience and strategic decision-making, that enable firms to adapt and respond effectively to foreign market demands (Meuric, 2025). Moreover, in line with Institutional Theory, SMEs in resource-scarce environments like Sabah must also align with institutional norms and expectations to gain legitimacy and access external support. Those with stronger internal capacities are more capable of doing so, thus benefiting more from institutional mechanisms such as government grants and export support programs (Alves & Carvalho, 2025).

Internationalisation Knowledge

According to DCT, internationalisation knowledge is a dynamic capability that allows firms to sense opportunities, seize them through strategic decisions, and reconfigure assets to fit foreign market contexts (Zakery & Saremi, 2024). Experiential, procedural, and contextual knowledge about international markets enhances strategic flexibility and reduces liability of foreignness (Fletcher et al., 2013). Firms that possess this capability can better navigate cross-border regulatory environments, cultural diversity, and competitive dynamics, thereby optimising entry modes and operational strategies (Sadeghi et al., 2023). From the Institutional Theory lens, such knowledge also helps firms conform to external expectations and institutional pressures, which is particularly crucial in institutional environments that are weak or fragmented, as is often the case in emerging markets like Sabah (Bag et al., 2023).

Risk Perception

The DCT assumes that companies with strong capabilities in risk and uncertainty management will have better dynamic capabilities. The risk perception, which depends on the previous experience of internationalisation or network embeddedness, influences the proactive entry of firms into foreign markets. There is evidence that small and medium-sized enterprises (SMEs) that classify risk as an opportunity and not a threat practice sustained learning and development of capabilities, which is a prerequisite to surviving in dynamic environments. From the perspective of the Institutional Theory, the overall institutional environment mediates the risk perception: enterprises integrated into favourable ecosystems with transparent regulation and viable support systems are likely to perceive less institutional risk and, therefore, are more internationally oriented (Le et al., 2021).

Market Uncertainty

Market uncertainty is a ubiquitous challenge to managerial planning and organisation that informs both theoretical and empirical discussion. Based on the dynamic capabilities perspective, the academic literature suggests that dynamic capability exists in firms that seem to have a never-ending learning, responsive sensing, and agile adaptation. The ability to innovate or recalibrate market strategy is therefore an adaptive measure to time-based changes, legal, technological, and economic, in the marketplace. At the same time, Institutional theory offers a different perspective, with a greater focus on institutional scaffolding like industry associations, government policy, and normative structures that enable firms to cope with uncertainty. When institutional arrangements are weak or disputed, as is common in Sabah, SMEs tend to choose to enter into partnerships or collective networks to share risk and improve market intelligence (Bag et al., 2023; Siahaan & Tan, 2022).

Government Support

From the Institutional Theory standpoint, government support represents formal institutions designed to lower barriers to internationalisation by providing regulatory clarity, subsidies, export incentives, and training (Jalali, 2024, 2025). In environments with institutional voids, like Sabah, such support plays a compensatory role by bridging gaps in market infrastructure (Falahat et al., 2020; Ahmad et al., 2021). DCT complements this by asserting that firms must possess or develop the internal capabilities needed to absorb and deploy these institutional supports effectively. Without such dynamic capabilities, even the most generous support mechanisms may fail to generate readiness (Matikonis & Graham, 2024; Otache & Usang, 2022).

Configurational Perspective

The antecedent conditions influence the internationalisation preparedness of a firm, but the process itself follows divergent and non-linear routes. In line with Fiss (2011), Configurational Theory assumes that there are numerous combinations, all of which are equally effective, that can lead to internationalisation readiness, or equifinal pathways. FsQCA methodology, which is often used to accommodate asymmetry of causality and interaction effects that regression models often ignore, is especially suitable to map such patterns.

In the SME sector of Sabah, there is a heterogeneous profile of resources, knowledge and institutional exposure of firms. The use of a configurational perspective will show how these disparate readiness profiles become different internationalisation trajectories and will allow researchers to focus their policy interventions more precisely.

METHODOLOGY

Research Design

This study adopts an fsQCA approach to examine how combinations of internal and external conditions shape internationalisation readiness among MSMEs in Sabah, Malaysia. FsQCA is a set-theoretic method that accounts for causal complexity, recognising that multiple distinct combinations or equifinal pathways may produce the same outcome and that conditions can have asymmetric effects (Ragin, 2008; Fiss, 2011).

The method is especially suited for this study due to:

1. Small-to-medium size sample. The fsQCA can generate robust insights from modest datasets without relying on large-N statistical assumptions.
2. Heterogeneity in SME profiles. Sabahan MSMEs vary widely in resources, knowledge, and institutional contexts, making interaction effects likely.
3. Policy relevance. The fsQCA’s ability to reveal different readiness profiles aligns with the study’s objective of informing differentiated intervention strategies.

Population and Sampling

The population comprises SMEs located in Sabah that have not yet engaged in formal internationalisation activities. To be more exact, the studied firms do not have overseas subsidiaries or engage in joint ventures with foreign partners. The use of this criterion allowed the study to focus on the enterprises at the stage of pre-internationalisation, enabling a more accurate evaluation of their level of preparedness and potential in terms of internationalisation. The research was conducted in Sabah due to its relatively low internationalisation rate, but great natural endowments in agriculture, tourism and resource-based industries.

To ensure the study’s relevance and focus, a purposive sampling was employed. This method made it possible to identify and select the firms that fit the predetermined criteria and were in line with the study objectives. The screening process also involved filter questions to ensure that the respondents met these requirements, resulting in a sample that included only firm at the pre-internationalisation stage. The sampling frame was based on the Sabah Industrial Directory, Federation of Malaysian Manufacturers (FMM) and Federation of Sabah Industries (FSI).

Instruments and Data Collection

Data was collected through a self-administered questionnaire aimed at decision-makers (owners, managers, and directors). The instrument was adapted from previous studies to ensure content validity and contextual relevance. Each item for the condition or constructs was measured using a 5-point Likert scale (1 = strongly disagree; 5 = strongly agree), capturing the respondents’ agreement with each statement. The following constructs and their associated items were measured:

• Firm Resources: Assessed the firm’s financial, managerial, and operational capacity to internationalise, with items adapted from David and Cariou (2014).
• Internationalisation Knowledge: Measured knowledge of foreign market dynamics, regulatory environments, localisation strategies, and international enterprise functions, adapted from Fletcher et al. (2013).
• Risk Perception: Captured the firm’s subjective assessment of the perceived risk and opportunity of engaging in international markets. One item (“Selling products in foreign markets implies high risk”) was negatively worded, while others reflected positive outlooks. Accordingly, this negatively worded item (RP1) will be reverse-coded during analysis to ensure construct consistency, where higher scores indicate a more positive risk perception. Items were adapted from Acedo and Florin (2006).
• Market Uncertainty: Measured perceived volatility in institutional, technological, customer, and regulatory environments. All five items are negatively framed, and no reverse coding is required. A higher score indicates greater market uncertainty. Items were adapted from Bai et al. (2017).
• Government Support: Measured the perceived level of institutional support provided by government agencies in aiding internationalisation, such as financial aid, programs, and policy facilitation. Items were adapted from Descotes et al. (2011).
• Internationalisation Readiness: Captured the firm’s self-assessed preparedness to operate internationally, including managerial motivation, product standards, strategic capacity, and international exposure. Items were adapted from Siriphattrasophon (2019).

The survey was distributed online (Google Forms) and supplemented with telephone and email follow-ups. Of 150 invitations, 44 valid responses were obtained, consistent with small-N fsQCA research standards (Rihoux & Ragin, 2009). For detailed operationalisation of all conditions and outcome variables, including item wordings, please refer to Appendix 1.

Calibration

To convert Likert-scale scores into fuzzy membership scores ranging from 0 to 1, this study employed the direct method of calibration (Ragin, 2008). This approach involves setting three empirically grounded anchors for each condition to ensure meaningful and data-driven calibration. The point of full non-membership was defined by the minimum observed score, while the crossover point representing a membership score of 0.5 was set at the sample mean. Full membership was anchored at the maximum observed score. This empirically grounded calibration enhances validity by ensuring set membership reflects actual data distributions rather than arbitrary cut-offs (Schneider & Wagemann, 2012; Nikou et al., 2022).

Analytical Procedure

Analysis was conducted in fsQCA 3.1 following standard steps:

1. Necessity Analysis tested each condition individually to determine whether it consistently appears in all cases of high readiness (consistency threshold ≥ 0.90).
2. Truth Table Construction listed all possible combinations of conditions, applying a consistency threshold of 0.86 and a frequency threshold of ≥ 1 case per configuration.
3. Solution Derivation generated complex, parsimonious, and intermediate solutions. The intermediate solution was selected as the most theoretically plausible, retaining only logically consistent configurations supported by prior literature.

This approach allowed identification of core conditions (present in both parsimonious and intermediate solutions) and peripheral conditions (present only in intermediate solutions), revealing the multi-causal structure of readiness in Sabahan SMEs.

FINDINGS AND DISCUSSION

Necessity Analysis

The necessity analysis tested whether any single causal condition consistently appears in all cases of high internationalisation readiness. Following Schneider and Wagemann’s (2012) threshold, conditions with a consistency score ≥ 0.90 are considered necessary.

Table 1. Necessity Analysis for High Internationalisation Readiness

Government Support (GS) meets the necessity criterion, showing that firms in this context rarely achieve readiness without some form of institutional intervention. The other conditions, while important, do not appear universally across high-readiness cases, reinforcing the argument that readiness arises from specific configurations rather than from a single determinant.

Configurations for High Internationalisation Readiness

In fsQCA, causal conditions are classified into core and peripheral based on their presence across parsimonious and intermediate solutions.

Table 2: Configurations Leading to High Internationalisation Readiness

• = Core presence, ○ = Core absence, • = Peripheral presence, ◦ = Peripheral absence, – = Irrelevant

The intermediate fsQCA solution identified six equifinal configurations (see Table 2), different combinations of causal conditions that lead to high internationalisation readiness. These solutions achieved a strong overall fit (consistency = 0.9501; coverage = 0.9121).

Configuration 1

Configuration 1 indicates the absence of market uncertainty and firm resources, and the presence of government support. Risk perception and international knowledge are irrelevant. It achieves a consistency of 0.9616, indicating strong reliability in producing the outcome, and a coverage of 0.2385, suggesting that it applies to a smaller subset of firms.

The absence of market uncertainty implies that firms operate in stable, predictable external environments, which reduces environmental volatility and simplifies the decision-making process for market expansion. In this context, the lack of firm resources, usually a constraint to readiness, is counterbalanced by the strong, core presence of government support. Government programmes can provide support through financial incentives, export facilitation, training, and network access, effectively substituting for internal resource deficiencies. In stable and well-supported environments, firms may not need to adopt a proactive risk-taking stance, as uncertainty is already reduced through reliable government support. Similarly, prior international experience becomes less critical when external institutions provide the necessary guidance, training, and market access, allowing firms to achieve high readiness through structural and resource-based strengths rather than experiential learning.

This finding aligns with the substitution effect as highlighted in prior studies (Navarro-García et al., 2024), where institutional mechanisms can replace missing firm-level resources in supporting export readiness. This pathway highlights an institutionally dependent strategy, particularly relevant in turbulent contexts where adaptability and institutional scaffolding jointly offset capability deficits.

Configuration 2

In configuration 2, the combination indicates the absence of market uncertainty, firm resources, and international knowledge, but with the presence of positive risk perception and government support. It records a consistency of 0.9713, demonstrating high reliability in producing high readiness. Its coverage of 0.1952 shows that it has a small spread in the sample.

As in Configuration 1, the absence of market uncertainty allows predictability and decreases complexity, which decreases environmental risk. Although firms here lack both resources and international knowledge, they are offset by external support in the form of government funding, facilitation of market entry, and training, combined with a positive attitude towards risk by management. This positive psychological environment stimulates the readiness of managers to take measured risks, thus allowing companies to utilise institutional programmes efficiently.

This configuration supports the findings of the earlier research on entrepreneurial orientation and institutional support (Iyiola et al., 2023; Zhuang & Sun, 2024), which indicates that proactive risk-taking enhances the influence of external help. Unlike Configuration 1, the present set-up is characterised by the presence of positive risk perception, which adds behavioural aspects to the construct of readiness. The findings are in line with those of Cowden and Tang (2022), who establish that an entrepreneurial mindset can counteract structural shortcomings when coupled with conducive institutions. Therefore, this system is still institution-specific, yet it emphasises that the dynamic aspects of mindset can augment the impact of institutional support.

Configuration 3

The configuration suggests the coexistence of market uncertainty and firm resources and the absence of positive risk perception and government support, whereas the international knowledge is considered irrelevant. The model is highly reliable, with a consistency value of 0.9745 and a moderate coverage of 0.1874, indicating that it captures a relatively small proportion of the sample.

In this structure, the increased volatility in the market complicates the internationalisation choices; however, the availability of strong firm resources provides the organisation with the strength to endure that uncertainty without governmental intervention. The absence of positive risk perception in the peripheral indicates that a reserved or hedged position can be beneficial in particularly uncertain situations by aversion of unpredictable risks. In addition, the inapplicability of international knowledge implies that organisations with good resources can purchase or outsource the market insights needed as part of their expansion process instead of using the existing knowledge.

This finding is consistent with the DCT argument that firms with better resources can maintain a competitive advantage and take strategic actions, even under unfavourable circumstances. Furthermore, resource-rich firms compensate for environmental volatility by deploying internal capabilities (Acikgoz et al., 2024). Unlike the results in configurations 1 and 2, configuration 3 refers to a self-sufficient readiness path, where the dependence on external assistance is not part of the internationalisation readiness (Taghizadeh et al., 2023).

Configuration 4

Configuration 4 combines the existence of firm resources and international knowledge, while the absence of positive risk perception and government support, together with the irrelevance of market uncertainty. It has a consistency of 0.9749, indicating high reliability in generating high internationalisation readiness. Additionally, it has a coverage of 0.2015, indicating moderate representation among the observed cases.

This configuration demonstrates that internationalisation readiness is driven primarily by strong firm resources and supported by international knowledge. For the firm, tangible and intangible assets provide the financial, operational, and technological base for expansion, while market knowledge equips firms to navigate trade regulations and cultural contexts effectively. The absence of positive risk perception suggests that resourceful firms can still succeed through cautious, evidence-based strategies rather than risk-seeking behaviour. Similarly, the lack of government support indicates a self-sufficiency model in which firms rely on internal strengths rather than institutional assistance. Finally, the irrelevance of market uncertainty shows that this configuration remains effective across both stable and volatile environments.

This configuration is consistent with DCT (Teece, 2018a), which notes that the combination of resources and market knowledge enables companies to sense and capture opportunities without external involvement. In addition, firms that have good internal resources and international knowledge tend to decrease reliance on governmental assistance (e.g., Nguyen & Verreynne, 2022).

Configuration 5

Configuration 5 indicates the absence of firm resources and international knowledge, and the presence of positive risk perception, government support, while market uncertainty is irrelevant. It has a lower consistency of 0.8767 than other configurations and a coverage of 0.1845, meaning it applies to a smaller percentage of firms.

It is a readiness for internationalisation that is based on institutional support and managerial mindset rather than internal capabilities. Firms in this structure lack both tangible resources and foreign expertise, which would otherwise limit preparedness. Nevertheless, the fundamental existence of government support, coupled with the existence of positive risk perception, is a proactive and opportunity-seeking orientation. Such a combination allows companies to utilise institutional resources to their advantage even in the face of structural inadequacies.

This combination is consistent with the results of earlier research (e.g., Jalali, 2024, 2025), which shows that although government support may be used to address short-term capability deficiencies, long-term success in internationalisation requires the development of internal resources. It is also aligned with the literature on entrepreneurial orientation (e.g., Falahat et al., 2021), which highlights that risk-taking may stimulate strategic initiatives but requires capabilities to achieve long-term results.

Configuration 6

Configuration 6 represents the presence of all conditions. It records the highest consistency among all pathways (0.9929), indicating near-perfect reliability, and the highest coverage (0.8085), showing that it accounts for the majority of firms achieving high readiness.

This pathway demonstrates an optimal combination where internal capabilities, external enablers, and cognitive orientations align. The presence of firm resources ensures sufficient financial and operational capacity to implement and sustain internationalisation strategies. The presence of government support offers institutional leverage ranging from export facilitation and policy incentives to training programmes that further strengthen competitive positioning.

Importantly, while market uncertainty is a normal and unavoidable aspect of international business, in this configuration, it does not impede readiness. Instead, its presence indicates that firms in this group can operate confidently despite uncertainty because other enabling factors, particularly strong resources, supportive institutions, informed decision-making, and a constructive approach to risk, counterbalance and neutralise potential instability. The peripheral presence of positive risk perception fosters calculated opportunity-seeking, while international knowledge provides the insight needed to adapt strategies to diverse and changing environments.

This configuration enables firms not only to prepare for market entry but also to sustain and adapt their internationalisation efforts over time. Such an outcome is consistent with multi-factor synergy perspectives (Jafari‐Sadeghi et al., 2021; Teece, 2018b), which argue that peak performance emerges when resources, capabilities, and institutional supports are not only present but fully integrated.

CONCLUSION, LIMITATIONS, AND RECOMMENDATIONS

The integration of necessity and sufficiency analyses provides a comprehensive perspective on the causal conditions influencing high readiness for internationalisation among the firms studied. The necessity analysis shows that government support (consistency = 0.9161) meets the threshold of 0.90, making it a necessary condition (Schneider & Wagemann, 2012). This result highlights the crucial role of institutional backing, such as export facilitation, policy incentives, and financial support, in driving firms toward high internationalisation readiness.

The configurational analysis further enriches these insights, consistently identifying firm resources and government support as core conditions in multiple high-readiness pathways. Three strategic models emerge. The first, the institutional compensation model (Configurations 1, 2, and 5), illustrates how government support can offset deficits in firm resources and international knowledge, often operating in contexts with low market uncertainty or in combination with a positive risk orientation. Secondly, the capability-driven independence model (Configurations 3 and 4) reflects firms that achieve internationalisation readiness primarily through strong internal resources, sometimes with the addition of international knowledge, without reliance on institutional support, even when facing high market uncertainty. Third, the ideal configuration model (Configuration 6) represents the optimal alignment of all enabling conditions (firm resources, knowledge, positive risk perception, and institutional support) that ensure the firms are adaptable to uncertainty, producing the highest coverage (0.8085) and consistency (0.9929) in the dataset.

By mapping these configurations, the study demonstrates how Institutional Theory and DCT are not contradictory but complementary, where sometimes operating in exchange, other times in a combined effect. The configurational approach provides insights into how different theoretical foundations coexist within SME ecosystems. These findings confirm the principle of equifinality, showing that there are multiple, equally effective pathways to readiness. They also demonstrate causal asymmetry, where the absence of a condition does not automatically hinder international readiness if other enabling factors are sufficiently strong.

From a policy perspective, these results suggest the need for tailored institutional interventions. Firms lacking resources and internationalisation benefit most from government comprehensive programmes combining funding, export facilitation, and risk management training. However, such interventions should be structured to promote capability accumulation, enabling firms to transition from dependence on government support to autonomous strategic readiness. For firms with abundant resources and knowledge, policy support may be most effective when it provides high-value market intelligence, facilitates cross-border networks, and streamlines regulatory processes, rather than offering direct financial assistance.

For managers, the evidence emphasises the importance of building a balanced capability base. Tangible resources and international knowledge, when combined, form a robust platform for readiness, reducing vulnerability to both market volatility and shifts in institutional policy. For firms currently lacking such capabilities, cultivating a positive yet calculated risk orientation can maximise the benefits of available government programmes and enable decisive action when opportunities arise. Resource-rich firms operating in uncertain markets should focus on adaptive strategies, including investment in market intelligence systems and operational flexibility, to sustain competitive advantage without over-reliance on external support.

From a theoretical standpoint, this study contributes to the literature by integrating DCT and Institutional Theory within a configurational framework, demonstrating that internationalisation readiness is not the result of isolated factors but rather the interaction of internal capabilities, cognitive orientations, and institutional environments. It also affirms the value of Configuration Theory in uncovering diverse and context-dependent pathways to strategic outcomes.

This research is not without limitations. The study was conducted in the specific context of Sabah, Malaysia, with a sample of 44 firms. While this sample size is appropriate and methodologically sound for fsQCA, it limits the generalisability of the findings beyond the studied region. The data are also cross-sectional, capturing readiness at a single point in time, which precludes observation of how configurations may evolve. Additionally, although the analysis includes five key conditions, other potentially influential factors, such as digital capability, leadership style, or industry-specific regulatory environments, were beyond the scope of this study.

Future research should address these limitations in several ways. First, longitudinal studies would help trace how firms transition between institutional compensation and capability-driven independence models over time, offering insight into the dynamics of capability development and policy impact. Second, expanding the study to other Malaysian states or different national contexts would allow for comparative analysis, testing the robustness and transferability of the configurations identified here. Finally, integrating additional conditions such as technological readiness, innovation capacity, and cultural factors could enhance the configurational models and align them more closely with the realities of global business in the digital era.

In conclusion, by combining necessity and sufficiency analyses, this study provides a nuanced, multidimensional understanding of how firms achieve high readiness for internationalisation. While firm resources and government support emerge as near-necessary and frequently core conditions, the diverse pathways to readiness underscore the importance of context-sensitive strategies. The findings not only advance theoretical debates in international business and strategic management but also offer actionable guidance for policymakers and managers seeking to enhance the global competitiveness of firms in emerging market contexts such as Sabah.

ACKNOWLEDGEMENT

This study was funded and supported by Universiti Malaysia Sabah [Grant Number DKP0027].

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APPENDIX

Appendix 1: Measurement Items