A firm’s organizational capabilities play a critical role in its success in international markets (Autio et al., 2000; Zahra et al., 2000). According to the resource-based view (RBV), organizational capabilities refer to the bundle of skills and knowledge embedded in a firm’s organizational routines (Knight and Cavusgil, 2004; Krasnikov and Jayachandran, 2008), serving as the main source of its competitive advantages (e.g., Grant, 1991). They offer a “key role of strategic management in appropriately adapting, integrating, and reconfiguring internal and external organizational skills, resources, and functional competences to match the requirements of a changing environment” (Teece et al., 1997, p.515). The importance of organizational capabilities may be even more critical to small- and medium-sized enterprises (SMEs) that must compete in international markets with limited resources. SMEs require different sets of skills and knowledge when competing in international markets; accordingly, various capabilities related to marketing, technology, operations, etc. may be needed (Day, 1994). Despite the significance of organizational capabilities to a firm’s successful export performance (Behyan et al., 2015; Knight and Cavusgil, 2004; Rodriguez and Rodriguez, 2005; Zhou et al., 2010), the specific development of these different capabilities remains underdeveloped. According to contingency theory, firms establish optimal strategies in response to organizational and environmental conditions (Harvey, 1982), which are mediated by managerial perception (Penrose, 1959). Consequently, managerial perception toward the environment is critical for creating reactions and selecting from among various strategic choices. Managers of SMEs in hostile environments—for instance, with high domestic market competition or small domestic market size—may be motivated to emphasize the development of different capabilities to remain competitive. Yet, when addressing the antecedents of various capabilities, previous studies have largely focused on the role of the internal environment—e.g. international entrepreneurial orientation—on marketing or technological capabilities (Keh et al., 2007; Knight, 2000; Martin and Javalgi, 2016; Weerawardena and O’Cass, 2004). Given that entrepreneurially-orientated firms may adjust their operations in dynamic environments (Covin and Slevin, 1989), these capabilities can be built effectively when such firms are challenged in the competitive market. However, the simultaneous effect of internal (e.g., international entrepreneurial orientation) and external environment (e.g., domestic market competition) on the development of SME capabilities has not been addressed in previous studies.