Globalization and rapid progress in information and communication technologies, as well as international services trade agreements (such as the General Agreement on Trade in Services and the European Union Service Directive), have improved the position of service industries in the world economy. Consequently, ever-increasing numbers of service firms are engaging in foreign markets (e.g., Akehurst 2008; Chadee and Pang 2008; Daniels 1993; OECD 2008; Roberts 1999). The literature on internationalization, however, does not pay much attention to this sector, tending to focus more on the manufacturing sector and multinational enterprises (MNEs). Moreover, the body of literature that does exist on this topic mostly concentrates on particular branches of the service industry, without much generalization of concepts or findings (Bryson 2001; Contractor et al. 2003; Lommelen and Matthyssens 2005). In today’s knowledge-based economy, scholars argue that a firm’s innovative and/or technological capabilities play a key role in its ability to create and sustain competitive advantage and, in turn, achieve international success (Audretsch 2000; Barney 1991; Cohen and Levinthal 1989). Building innovative capabilities is directly associated with gaining and accumulating knowledge within the firm— through combining internal and/or external knowledge—and then transforming that knowledge into innovations in order to strengthen economic performance (e.g., Cohen and Levinthal 1990; Ganotakis and Love 2011; Garcı´a et al. 2012; Guerra and Camargo 2016). There is a large and growing research in the literature on the relationship between knowledge sourcing and innovation outputs (Bikfalvi et al. 2013; Frenz and Ietto-Gillies 2009; Garcı´a et al. 2012; Hsu et al. 2014; Lejpras and Stephan 2011; Miles 2008; Rodriguez et al. 2016), and another body of research deals with the contribution of a firm’s innovative performance to its engagement in overseas markets (Becchetti and Rossi 2000; Bleaney and Wakelin 2002; Doloreux and Laperrie`re 2014; Kirbach and Schmiedeberg 2008; Lejpras 2015). However, to the best of our knowledge, studies linking both these topics with a focus on the differences between service and manufacturing sectors are scarce. Our paper aims to shed some light on this area.