ESSAYS ON INNOVATION STRATEGY, DETERMINANTS AND PERFORMANCE HE ZILIN NATIONAL UNIVERSITY OF SINGAPORE 2003 ESSAYS ON INNOVATION STRATEGY, DETERMINANTS AND PERFORMANCE HE ZILIN (B.E., M.E., Shanghai Jiao Tong University) A THESIS SUBMITTED FOR THE DEGREE OF DOCTOR OF PHILOSOPHY DEPARTMENT OF BUSINESS POLICY NATIONAL UNIVERSITY OF SINGAPORE 2003 ACKNOWLEDGEMENT I would like to express my deepest appreciation to my supervisor, Associate Professor WONG Poh Kam, who has always been willing to help and support this research in any possible way. This research would not have been possible without his patience, encouragement and insightful guidance. The many hours we spent together discussing the conceptual and analytical issues of this research helped to correct and sharpen the focus of my dissertation. Professor Wong’s personal imprint on me is far beyond research. It is a blessing to have him as my supervisor. I also wish to thank the members of my dissertation committee, Associate Professor TOH Mun Heng and Dr. Ishtiaq P. Mahmood for sharing their ideas and expertise with me, and providing helpful comments. I also specially thank Associate Professor Rao Kowtha, the Director of PhD/MSc Program at the NUS Business School for his suggestions on managing the PhD journey. I would like to thank Professor Kathleen Eisenhardt, Professor Robert Hoskisson, Dr. LIM Kwanghui, Professor Sankaran Venkataraman and Associate Professor YEUNG Wai Chung Henry for their helpful comments on the earlier draft of some of the chapters of this dissertation. Generous help from Dr. Matthias Kiese, Finna Wong and Annette Amy Singh is also very much appreciated. I am grateful to NUS for providing a research scholarship during my four-year PhD program. NUS also provided conference funding, which made it possible for me to attend DRUID Summer Conference (Aalborg, June 2001), Academy of Management i Annual Meeting (Denver, August 2002; Seattle, August 2003) and Academy of International Business Annul Meeting (Monterey, July 2003), where I presented papers based on this research. A conference subsidy from UNU/WIDER also allowed me to present an earlier draft of one chapter of this dissertation at the UNU/WIDER Conference on the New Economy in Development (Helsinki, May 2002). All these papers were written jointly with my supervisor. I greatly benefited from the comments of anonymous referees of these conferences. For the four essays included in this thesis, I initiated the research ideas and I did all the real work, but my supervisor also provided very important suggestions to improve them, besides his substantial efforts to polish my poor English. Finally and most importantly, I wish to thank my dear wife, Deng Min, for her unfailing support and encouragement, for the ups and downs we have gone through, and for the time we will spend together in the rest of my life. This research is funded by the NUS Entrepreneurship Centre. ii TABLE OF CONTENTS ACKNOWLEDGEMENT i TABLE OF CONTENTS iii LIST OF TABLES vi LIST OF FIGURES viii LIST OF APPENDICES ix SUMMARY x Chapter 1. INTRODUCTION 1.1 Overview and Motivation 1.2 Key Findings 1.3 Contributions to the Literature 1.4 Organizing Framework of the Dissertation 10 12 Chapter 2. THREE INNOVATION SURVEYS 2.1 The Definition of Innovation 2.2 The Singapore Manufacturing Innovation Survey 2.3 The Singapore KIBS innovation Survey 2.4 The Penang Manufacturing Innovation Survey 2.5 The Combined Dataset for Essay One 19 21 24 27 29 Chapter 3. EXPLORATION VERSUS EXPLOITATION: AN EMPIRICAL TEST OF THE AMBIDEXTERITY HYPOTHESIS 3.1 Introduction 32 3.2 Literature Review 34 3.2.1 The Distinction between Exploration and Exploitation 34 3.2.2 The Tension between Exploration and Exploitation 36 3.3 Hypotheses 39 3.3.1 Balancing Exploration and Exploitation—the Ambidexterity Hypothesis 39 3.3.2 The Ambidexterity Hypothesis in the Context of Technological Innovation 42 3.4 Data and Methods 45 3.4.1 Data Source 45 3.4.2 Variables 47 3.4.3 Methods 56 3.5 Results 58 3.5.1 Hierarchical Regression Results 58 3.5.2 Structural Equation Modeling Results 62 3.5.3 Sensitivity Analysis 65 3.6 Discussion 66 3.6.1 Contributions and Implications 66 3.6.2 Limitations and Future Research 71 iii Chapter 4. THE IMPACT OF KNOWLEDGE INTERACTION WITH MANUFACTURING CLIENTS ON KIBS FIRMS’ INNOVATION BEHAVIOR 4.1 Introduction 72 4.2 Literature Review 74 4.2.1 Innovation in Services 74 4.2.2 Knowledge-Intensive Business Services 76 4.2.3 The Role of KIBS in Innovation Systems 79 4.3 Hypothesis 82 4.4 Data and Methods 85 4.4.1 Development of KIBS in Singapore 85 4.4.2 Data Source 86 4.4.3 Variables 88 4.4.4 Methods 93 4.5 Results 94 4.5.1 Hypothesis Testing 94 4.5.2 Sensitivity Analysis 99 4.6 Discussion 100 4.6.1 Contributions and Implication 100 4.6.2 Limitations and Future Research 102 Chapter 5. LOCAL EMBEDDEDNESS, GLOBAL NETWORKING, AND THE INNOVATION PERFORMANCE OF FIRMS 5.1 Introduction 105 5.2 Literature Review 107 5.2.1 The Importance of Local Embeddedness for Innovation 107 5.2.2 Localized Nature of Knowledge Spillovers 112 5.3 Hypotheses 114 5.3.1 Limitations of Local Networks 115 5.3.2 The Complementary Role of Global Networking 119 5.3.3 The Local/Global Complementarity Hypothesis 121 5.4 Data and Methods 123 5.4.1 Data Source 123 5.4.2 Variables 125 5.4.3 Methods 126 5.5 Results 128 5.5.1 Spatial Pattern of Innovation Networks 128 5.5.2 The Impact of Innovation Networks on Innovation Performance 131 5.6 Discussion 133 5.6.1 Theoretical Implications 135 5.6.2 Managerial and Policy Implications 136 5.6.3 Limitations and Future Research 138 Chapter 6. THE MODERATING EFFECT OF FIRMS’ INTERNAL CLIMATE FOR INNOVATION ON THE IMPACT OF PUBLIC INNOVAITON SUPPORT PROGRAMS 6.1 Introduction 140 6.2 Literature Review 143 6.2.1 Public Innovation Support Program 143 iv 6.3 6.4 6.5 6.6 6.2.2 Evaluating Public Innovation Support Program Hypothesis 6.3.1 Internal Climate for Innovation 6.3.2 The Moderating Hypothesis Data and Methods 6.4.1 Background information on Singapore 6.4.2 Data Source 6.4.3 Variables 6.4.4 Methods Results Discussion 6.6.1 Three Interesting Findings 6.6.2 Limitations and Implications 144 147 147 148 152 152 154 155 164 166 172 172 174 Chapter 7. CONCLUSION 178 BIBLIOGRAPHY 184 APPENDICES 205 v LIST OF TABLES Table 1-1. Summary of the Four Essays 14 Table 2-1. R&D Expenditure and Research Scientists & Engineers in Singapore 17 Table 2-2. International Comparisons—GERD/GDP Ratio 18 Table 2-3. International Comparisons—RSE per 10,000 Labor Force 18 Table 2-4. Population, Sample and Response Rate of Singapore Manufacturing Survey 23 Table 2-5. Response Bias towards Foreign and Large Firms of Singapore Manufacturing Survey 24 Table 2-6. Population, Sample and Response Rate of Singapore KIBS Survey Table 2-7. Population, Sample and Response Rate of Penang Manufacturing Survey 28 Table 2-8. Innovating Firms of Two Manufacturing Surveys for Essay (by nationality) 29 Table 2-9. Innovating Firms of Two Manufacturing Surveys for Essay (by industry sectors) 30 Table 2-10. Innovating Firms of Two Manufacturing Surveys for Essay (by technology classes) 31 Table 3-1. Variable Description for Essay 48 Table 3-2. Factor Analysis for Innovation Strategy 51 Table 3-3. Full Sample Regression for Sales Growth Rate 58 Table 3-4. Regression for Innovation Intensities 60 Table 3-5. Regression for Sales Growth Rate 61 Table 3-6. Standardized Path Coefficients for Essay 64 Table 3-7. Comparison of Different Grouping Methods 66 Table 4-1. Share of KIBS Employment in the Service Sector (%) 86 Table 4-2. Share of KIBS Value Added in the Service Sector (%) 86 Table 4-3. Variable Description for Essay 92 26 vi Table 4-4. Logistic Regression for KIBS Firms’ Propensity to Innovate and to Do R&D 96 Table 4-5. Tobit Regression for KIBS Firms’ Innovation and R&D Spending Intensity, Diversity of Innovation Activities, and New Services Intensity 98 Table 4-6. Compare the Impact of Big Client and Innovation Support Table 5-1. Variable Description for Essay 126 Table 5-2. Spatial Pattern of Innovation Networks 129 Table 5-3. Pearson Correlation between Local and Global Innovation Networks 131 Table 5-4. Tobit Regression for Innovation Performance 132 Table 6-1. Variable Description for Essay 156 Table 6-2. Factor Analysis for Innovation Collaboration with External Parties 158 Table 6-3. Factor Analysis for Internal Climate for Innovation 162 Table 6-4. Pooled Sample Regression Analysis of the Impact of Public Innovation Support 170 Table 6-5. Subgroup Regression Analysis of the Impact of Public Innovation Support 171 Table 6-6. T-test for Environment for Innovation in Singapore 99 174 vii LIST OF FIGURES Figure 3-1. Standardized Parameter Estimates for SEM Analysis—Fit as Moderating 62 Figure 3-2. Standardized Parameter Estimates for SEM Analysis—Fit as Matching 63 Figure 4-1. Share of Services in Business R&D Expenditure in Singapore and Selected OECD Countries 76 Figure 4-2. Contribution of KIBS Firms in Innovation Systems Figure 4-3. The Knowledge Interaction Process between KIBS Firms and Their Clients 84 Figure 5-1. Spatial Pattern of Innovation Networks 130 Figure 5-2. Spatial Pattern of Innovation Networks Excluding Foreign Firms 130 Figure 6-1. Shift of MRR Curve by Firms with Promotive or Restrictive Internal Climate for Innovation 150 Figure 6-2. Shift of MCC Curve by Firms with Promotive or Restrictive Internal Climate for Innovation 152 81 viii Appendix Appendix IV Definition of Manufacturing Sectors for the Combined Dataset of Two Manufacturing Surveys Sector/SSIC 1996 code Description Electronics 31 Manufacture of electronic products and components Chemicals 23 24 25 35 Manufacture of coke, refined petroleum products and nuclear fuel Manufacture of chemicals and chemical products Manufacture of rubber and plastic products Recycling Machinery and equipment 29 Manufacture of machinery and equipment 30 Manufacture of electrical machinery and apparatus 32 Manufacture of medical, precision and optical instruments, watches and clocks 33 Manufacture of transport equipment Metal and mineral product 26 Manufacture of non-metallic mineral products except products of petroleum and coals 27 Manufacture of basic metals 28 Manufacture of fabricated metal products except machinery and equipment Food, textile, wood and paper products 15 Manufacture of food products and beverages 16 Manufacture tobacco products 17 Manufacture of textiles 18 Manufacture of wearing apparel, dressing and dyeing of fur 19 Tanning and dressing of leather, manufacture of luggage, handbags, saddlery, harness and footwear 20 Manufacture wood and of products of wood and cork except furniture, manufacture of articles of straw and plaiting materials 21 Manufacture of paper and paper products 22 Printing and reproduction of recorded media 34 Manufacture of furniture, manufacturing nec Source: Centre for Entrepreneurship, NUS 208 Appendix Appendix V OECD Definition of Technology Classes a Aerospace Computers, office machinery Electronics-communications Pharmaceuticals Scientific instruments Electrical machinery Medium-high Motor vehicles technology Chemicals Non electrical machinery Shipbuilding Rubber and plastic equipment Medium-low Other transport equipment technology Stone, clay and glass Non-ferrous metals Other manufacturing Fabricated metal products Petroleum refining Ferrous metals Low technology Paper, printing Textiles and clothing Wood and furniture Food, beverages Source: Science, Technology and Industry Outlook 1996 (OECD, 1996) Based on direct and indirect R&D intensity: ratio of R&D expenditures and embodied technology flows per unit of output in 22 manufacturing sectors in ten OECD countries from 1980 to 1995. High technology a. 209 Appendix VI. Mean, Standard Deviation and Correlation for Essay Mean SD 10 11 12 13 14 15 1. Sales growth rate 11.64 21.01 2. Explorative 3.94 .83 .074 innovation strategy 3. Exploitative 3.89 .84 .043 .112 innovation strategy 4. Product 23.00 25.95 .217** .185** .139* innovation intensity Process 31.53 31.38 .209** .048 .199** .392** innovation intensity 6. Location .67 .47 -.120 -.043 -.199** .058 -.031 7. High technology .24 .43 .214** .066 .092 .233** .242** .090 8. Medium .40 .49 -.171* -.007 -.153* .006 -.097 .136 -.460** technology 9. Low technology .36 .48 -.019 -.052 .074 -.215** -.117 -.219** -.424** -.609** 10. Japan .16 .37 -.185* -.019 .038 .040 .073 .030 -.062 .132 -.079 11. North American .16 .37 .127 -.175* -.043 .006 .025 .142* .247** -.031 -.189** -.191** 12. EU .10 .29 -.027 .108 -.013 .146* .088 .084 .054 .084 -.134 -.139* -.139* 13. Firm age 15.68 12.19 -.073 -.031 -.035 -.034 -.076 .129 -.077 -.022 .091 -.048 -.088 .208** 14. Firm size 103.87 194.18 .034 .044 .111 .126 .085 .147* .293** -.107 -.154* .129 .205** .012 .069 15. Export 51.17 38.34 .061 -.036 -.037 .141* .074 .152* .237** .046 -.261** .251** .340** .152* -.018 .290** 16. R&D spending 2.42 3.55 .041 .165* .091 .173* .026 -.109 .137* .044 -.168* -.050 -.038 .020 -.093 -.080 .005 intensity All descriptive statistics reported from non-transformed values (i.e., firm age, firm size, product innovation intensity and process innovation intensity are not natural log transformed). ** p[...]... research examines several important facets of innovation, including innovation strategy, innovation in services, innovation networks, and public innovation support This dissertation consists of four essays which intend to fill a number of conceptual and empirical gaps in the innovation literature Each essay constitutes a separate chapter Exploration and exploitation are fundamentally different logics, which... of innovation networks and its impact on innovation performance Chapter 6 focuses on how organizational variables influence the effectiveness of public innovation support The four essays in this dissertation draw upon a diverse body of literature to study firm innovation and make a number of contributions to the literature The first essay (Chapter 3) makes certain contributions to organization and. .. country level Using firm-level innovation survey data, this research examines several important facets of innovation, including innovation strategy, innovation in services, innovation networks, and public innovation support This dissertation consists of four essays which intend to fill a number of conceptual and empirical gaps in the innovation literature Each essay constitutes a separate chapter Table... of innovation is appropriate in the context of this research because, different from firms in advanced economies, firms in Singapore and Malaysia may not often generate worldclass innovation A major concern with innovation surveys in services is co-terminality (or interactivity, co-production) of service production and consumption in time and space Close interaction between production and consumption... overall conclusions and implications 13 Research Questions Hypotheses Data Chapter 3 Do exploration and exploitation enhance each other’s value, or detract from each other’s value? How can exploration and exploitation jointly influence firm performance? In the context of innovation strategy, can firms derive benefits from maintaining a balance between explorative innovation strategy and exploitative innovation. .. global innovation restrictive one networks will achieve better innovation performance, i.e., there is a positive interaction effect on innovation performance between local embeddedness and global networking Innovation survey in Singapore Innovation survey in Singapore (manufacturing) (manufacturing) Firm Firm 145 Correlation, Tobit regression 145 Sub-group regression 14 Table 1-1 Summary of the Four Essays. .. of the research questions, hypotheses, key findings and contributions of each essay Innovation strategy A fundamental concern of the innovation literature is how innovation actually influences firm performance The first essay (Chapter 3) applies the exploration vs exploitation construct in organization learning (March, 1991) to study the impact of innovation strategy on firm performance measured by... (1981-2000) 215 Appendix XII Mean, Standard Deviation and Correlation for Essay 2 216 Appendix XIII Tobit Regression for KIBS Firms’ Innovation and R&D Spending Intensity, Diversity of Innovation Activities, and New Services Intensity (Heckit results) 217 Appendix XIV Mean, Standard Deviation and Correlation for Essay 3 218 Appendix XV Tobit Regression for Innovation Performance (Heckit results) 219 Appendix... capabilities and cultures, and compete for firms’ limited resources In the first essay (Chapter 3), I extend the exploration vs exploitation construct to define innovation strategy—explorative innovation strategy vs exploitative innovation strategy, and test how exploration and exploitation can jointly influence firm performance I find that there is a positive interaction effect between the two strategies on. .. draw upon a diverse literature to study firm innovation and make a number of contributions to the literature Findings of this research are helpful to answer several important research questions regarding innovation strategy, determinants and performance, and public policy evaluation xi Chapter 1 CHAPTER 1 INTRODUCTION In this chapter, I introduce the dissertation, summarize the key findings and contributions, . firm-level innovation survey data, this research examines several important facets of innovation, including innovation strategy, innovation in services, innovation networks, and public innovation support the exploration vs. exploitation construct to define innovation strategy—explorative innovation strategy vs. exploitative innovation strategy, and test how exploration and exploitation can jointly. firm-level innovation survey data, this research examines several important facets of innovation, including innovation strategy, innovation in services, innovation networks, and public innovation support.