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The impact of innovation capabilities on firm performance: an empirical study on industrial firms in China's transitional economy

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posted on 2024-11-11, 15:44 authored by Jing Zhang
During the past two decades of economic reform in China, market processes have given rise to new imperatives for industrial firms. These firms must now rely far more on internal innovation capabilities and resources in pursuit of efficiency-based performance. These firms can no longer assume that their previous resources and capabilities such as capabilities to produce more existing products will provide them with competitive advantage. This thesis is concerned with the way that Chinese industrial firms are responding to this new environment. The focus of this study is on the impact of internal innovation capabilities on firm performance. The resource-based view of the firm (RBV) and the chain-link model of innovation provide the theoretical building blocks for the analysis. The main stream of research in strategic management literature has generally concentrated on examining firm internal specific resources and capabilities in enhancing firm performance. The resource-based view of the firm (RBV) has provided a theoretical focus for much of this work. This perspective suggests that firm internal idiosyncratic capabilities and resources with valuable, rare, inimitable and imperfectly substitutable characteristics are the primary determinants of firm performance (Barney, 1991). On the other hand, in the area of innovation research, the chain-link model of innovation conceptualizes innovation as an interactive process of market opportunities and firm knowledge base and capabilities (Kline and Rosenberg, 1986; OECD, 1997). These resources and capabilities maintain intrinsic characteristics such as specificity, valuableness, and inimitability, and thereby result in competitive advantage and superior performance. In this thesis, the RBV is integrated with the chain-link model of innovation to provide a theoretical framework for understanding the impact of innovation capabilities on firm performance among a large sample of Chinese industrial firms. Although the RBV approach has been one of the most popular frameworks for understanding the determinants of firm performance and the importance of innovation has been widely recognized, there is little empirical evidence to explain the nature of the relationship between innovation capabilities and firm performance and how this is mediated, especially in a transition economy. This thesis seeks to inform that understanding by drawing together the RBV approach and the dynamic process of innovation revealed through the chain-link model. The empirical base for this study is provided by data collected through China's largest official technological innovation survey of industrial firms carried across six important industrial regions in 1996. A sample of 3843 Chinese industrial firms in Beijing, Liaoning, Harbin City, Shanghai, Jiangsu and Guangdong province offered the opportunity for this thesis to investigate the relationship between innovation capabilities and firm performance. This unique dataset provides comparable data across these regions and different type of firms. The general finding from this study is that innovation capabilities carry significant implications for enhancing firm performance. However, the analysis also reveals the complexity of this relationship. Innovation capabilities have both independent and interactive impacts on firm performance. Moreover, the impact of innovation capabilities is moderated by several environmental and organizational factors. Innovation capabilities in this study are delineated in a multidimensional form: R&D capability; absorptive capability of external technology resources; product development capability; process innovative capability; manufacturing capability; and marketing capability. Firm performance is measured in terms of financial, market and innovation performance. The analysis exposes how the impact of the individual dimensions of innovation capabilities varies according to different performance objectives. R&D capability is an important contributor to financial, market and innovation performance. Absorptive capability is positively related to market performance, but negatively related to innovation performance. Product development capability and process innovative capability are positively associated with market and innovation performance, but have no direct association with financial performance. Manufacturing capability and marketing capability have a relatively weak relationship with firm performance. The interaction of R&D capability and marketing capability demonstrates a monotonically positive effect on innovation performance, but a non-monotonic negative relationship with financial performance. Furthermore, innovation capabilities affect firm performance under different environments influenced by experiences of regional development, innovation policy support, industry type and ownership. These findings also support the argument developed in this thesis that it is the interaction between innovation capabilities in specific environmental contexts rather than the separate capabilities themselves that is more important for driving firm performance. Overall, this study provides evidence to support the theoretical assumptions of the RBV and confirms the potential of the RBV to provide an appropriate analytical framework for investigating the relationship between innovation capabilities and firm performance in a transitional economy. These findings carry implications for how managers and policy makers can best promote innovation capabilities to assist Chinese industrial firms enhance their performance in transforming economic environments.

History

Year

2004

Thesis type

  • Doctoral thesis

Faculty/School

School of Management and Marketing

Language

English

Disclaimer

Unless otherwise indicated, the views expressed in this thesis are those of the author and do not necessarily represent the views of the University of Wollongong.

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