This study investigates whether inter-firm relationships can raise innovation and overall performance during SME internationalization, focusing on how SMEs learn from firms in transnational markets and the nature of such relationships. It contributes to research by proposing the role of vicarious learning from networked firms in the host country to improve their absorptive capacity (ACAP), innovation, and overall performance. In particular, this study proposes the moderating roles of the strength of ties with and prior success experience of SMEs in the host country market for enhancing international SMEs' vicarious learning to improve their ACAP, innovation, and overall performance. Structural equation modeling was applied to a sample of 163 valid responses received from international SMEs operating in various industrial sectors in Saudi Arabia. The obtained results support the significantly positive role of international SMEs' vicarious learning from local firms in developing their ACAP and enhancing their innovation and overall performance. However, international SMEs must have strong ties with local firms and learn from such firms' prior success experiences to derive these benefits fully.