The Determinants of Product Innovation: An Empirical Analysis Based


The aim of this research is to analyze the determiners of merchandise invention utilizing firm-survey informations over 8 different states. The independent variables are derived from the resource-based position, industry-based position, and institution-based position. By conveying together explanatory variables from three different positions, this survey attempts to look into the extent to which the internal capablenesss of houses and the environmental context in which the houses operate affect the degree of merchandise invention.

Most old researches on merchandise invention have dealt with one individual or a comparing of a few specific states. With a sample of 1,114 fabrication houses from 8 different states, this paper seeks to lend to the literature by placing institutional factors that can determine the environment that promote or hinder the degree of merchandise inventions of houses. It besides examines general differences in the comparative importance of these factors across states. The consequences of this paper hope to cast some visible radiation to directors and policy shapers of different states on how to break surrogate merchandise inventions in their states.

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1. Introduction

Firms must continuously introduce if they are to last. Organizational invention has been recognized by many bookmans as an of import beginning of competitory advantage for a house. Particularly in the current dynamic concern environment, being able to replace merchandises often with better versions is progressively going more of import due to shorter merchandise life rhythm and fast alterations in the market ( Brown and Eisenhardt, 1995 ) . Therefore, invention is now ineluctable for companies which want to develop and keep a competitory advantage in the markets.

So, how do we specify invention? There have been many different definitions and measurings on invention. In 1992, the Organization for Economic Cooperation and Development ( OECD ) published the first version of the ‘Oslo Manual ‘ in effort to supplying a general model within which research on invention can germinate toward comparison. Following the Oslo Manual ‘s lead, this paper defined invention as ‘implemented technologically new merchandises and procedures and important technological betterments in merchandises and procedures. ‘ ( Becheikh, p. 645 )

Among these two inventions, merchandise and procedure inventions, this paper focuses entirely on merchandise inventions. Product invention has been recognized as primary agencies of corporate reclamation ( Dougherty, 1992 ) . Successful new merchandises are critical for many organisations, since merchandise invention is one of import manner that organisations can accommodate to alterations in markets, engineering, and competition. ( Dougherty, 1996 ) . Product invention contributes in several ways. For illustration, research grounds suggests a strong correlativity between market public presentation and new merchandises. New merchandises help gaining control and retain market portions, and increase profitableness in those markets. Besides, in a universe of shortening merchandise life rhythms, puting merchandises often with better versions is progressively of import.

Not merely for houses, but it is besides of import for states to further inventions for its national fight. Harmonizing to Joseph Schumpeter ( 1942 ) , to whom invention survey originated, invention represents the driving force of states ‘ economic development and productivenesss. He argues in this celebrated book, Capitalism, Socialism, and Democracy, that technological invention by enterprisers frequently creates impermanent monopoly which would shortly be deceased by challengers and impersonators. The net incomes from impermanent monopolies bring the inducements for houses to continuously develop new merchandises and procedures, which in bend destroy the value of established companies. This procedure of transmutation, which he called ‘creative devastation, ‘ ensures economic enlargement of a state. Therefore, it is imperative for policy shapers of each state to make an environment that can promote advanced activities at a national degree. Improvement in establishment, substructure, and human capital may besides lend to significant growing, but they finally seem to run into decreasing returns. In the long tally, criterions of life can be enhanced merely by invention ( Nelson, 1993 ) .

Because of this importance of the subject, invention has been having increased attending for decennaries. A considerable figure of explanatory variables to a house ‘s successful invention has been considered by bookmans. However, the invention procedure is still ill understood because these old surveies frequently have produced equivocal consequences, supplying contradictory anticipation about house invention ( Rothwell, 1992 ) . In other words, those explanatory variables frequently had differing grades of association. There is still no precise prescription for successful invention.

In an effort to understand the ground for this limited cognition on invention, the writer of this paper noticed that recent surveies of invention have mostly ignored institutional factors. This follows Peng ‘s ( 2008 ) observation that old house scheme researches have chiefly concentrated on two positions, industry- and resources-based positions. Those positions have so allowed a better cognition and apprehension of the extremely complex mechanism of invention coevals. However, handling establishments merely as background is non sufficient because establishments provide the “ regulations of the game ” for all the houses that operate in a state ( North, 1990 ) . So the intent of this paper is to those different positions should now be brought together in order to hold a more thorough apprehension of the invention phenomena.

To be certain, the influence of the “ environment ” has long been featured in the industry- and resource-based positions ( Lawrence & A ; Lorsch, 1969 ) . However, what has dominated the research is a “ undertaking environment ” position, which focuses chiefly on economic variables such as market demand and technological alteration ( Dess & A ; Beard, 1984 ) . Until late, bookmans had seldom looked beyond the undertaking environment to research the interaction among establishments, organisations, and strategic picks ( as critiqued by Narayanan & A ; Fahey, 2005 ; Teegen et al. , 2004 ) . Alternatively, a market-based institutional model has been taken for granted, and formal establishments ( such as Torahs and ordinances ) and informal establishments ( such as norms and knowledges ) have been assumed off as “ background ” conditions. ( Peng, p. 922 ) Treating establishments as independent variables, an institution-based position of scheme focal points on the dynamic interaction between establishments and organisations, and considers strategic picks as the result of such an interaction. Specifically, strategic picks are non merely driven by industry conditions and house capablenesss, but are besides a contemplation of the formal and informal restraints of a peculiar institutional model that directors confront. ( Peng, p. 923 )

States differ in their advanced public presentation. The differences between states suggest that nation-specific factors shape the invention processes. Nationally specific constructions of organisations and establishments may do the difference.

Institutional factors may act upon the merchandise invention in figure of waysaˆ¦

e?°i-…i?? e??e“ e??i?„ i??e?? i•?e‹¤e? i•?e?”e??e?„ e·?e“¤i?? i†?i•?iz?eS” e‚?e??i?? i ?e?„i ? i??e©?i-? e”°e?? e·?e“¤i?? invention leveli?? i°?i??e°ˆ e‚?e?? e??e‹¤ .

e??i•? establishment factorse?? e??eS” e??i?? policy makere“¤i-?e?? e·?e“¤i?? innovationi?„ fosteri•?e?°i?„i•? e‚?i•„e°ˆi•? i• e°©i-?i-? e?ˆi•? i??i•?e?°i•?i¤„ i?? iz?e‹¤ .

In response to the increased acknowledgment of the invention and its deciding institutional factors, a considerable sum of literature has been published on these topicsaˆ¦

This paper contributes to the literature byaˆ¦

This paper is structured as followed. Firstaˆ¦is discussed from a theoretical point of view. The hypotheses are developed.

These hypotheses are tested utilizing study informations of fabrication houses in 8 different states.

The findings suggest thataˆ¦

2. Theory and hypotheses

( Becheikh, p. 651 )

A considerable figure of explanatory variables of the advanced behaviour of houses have been considered by writers.

Since the 1990s, a big sum of conceptual and empirical research has been conducted to place those factors which influence the invention of houses.

In their well-known work, A and B created the frameworkaˆ¦

In a figure of empirical studies, a broad scope of determiners of merchandise invention has been considered. A ( 1989 ) observed that aˆ¦

2.1. Firm ‘s internal capableness on merchandise invention

Resource-based position position explains differential house public presentations based on resources and capablenesss internal to the house ( Barney, 2001 ) . In this survey, I will utilize following RBV related variablesaˆ•exporting and R & A ; D strength. Size? Ownership construction? Human resources? ( Becheikh, p. 652 )

Size became one of the variables most studied as a determiner of invention. Two chief statements indicate a positive consequence of size on invention: ( 1 ) big companies have more resources to introduce and back up hazardous activities than do SMEs, and ( 2 ) big houses can profit from economic systems of graduated table in R & A ; D, production and selling.

The relation between a house ‘s size and invention is instead complex and could be influenced by several factors.

Industry conditions, market construction.

It would hence be wise to anneal these consequences so as non to fall into opprobrious generalisations. ( Becheikh, p. 652 ) . The relation is more complex than it first appears and that it is influenced by several other factors such as industry features and market construction. ( Becheikh, p. 659 )

Schumpeter ( 1942 ) i-? e”°e??e©? e?ˆe?°i-…i?ˆ e·?e??i?? e??i ?i„±i??e?? i??i•?i-¬ e?°i? i??i‹ i™?e?™i-?

e?” i ?e·?i ?i?? e??i??e?? e??e‹¤ . i¦‰ , e?ˆe?°i-…i?ˆ R & A ; Di™?e?™ , i??i‚°eY‰ e°? i??i‚°i„¤e?„ , e§?i?ˆi?… , e·?e¦¬

e? iz?e??i?°e‹¬ e©?i-?i„? e·?e??i?? e??i ?e?? i-?i? i•?e?° e•?e¬?i-? i‹ e?°i? i?? i°?i¶? e°? i™?is© e°ˆeS?i„±

i?? e?” i?¬e‹¤eS” e??i??e‹¤ . i•?iZ? , Scherer and Ross ( 1990 ) e“±i-? i??i•?e©? e?°i-…i?? e·?e??e°ˆ i»¤

e°?i??e?? i?¤iz?e ¤ R & A ; Di?? is?i??i„±i?? e-?i-?i§? i?? iz?e‹¤e? i•?e‹¤ . e?ˆe?°i-…i-?i„?eS” i?°i§?i?? e°©e§?

i•?e?? e?ˆe¦¬e??e©° , e?ˆe??i??i??e?? e§?e??i•”i•„ e??i•™iz?e‚? e?°i? iz?i?? e°?e?…e?™e?°e°ˆ i†?i??e? e°ˆeS?i„±

i?? i»¤i§„e‹¤eS” e??i??e‹¤ . e??e§? i•„e‹?e?? e?ˆe?°i-…i-?i„?eS” i¤‘i†?e?°i-…e?? e‹¬e¦¬ e°?e?…e°ˆi?? e°?e?„i ?

– 80 –

e…?e ? i??i?ˆ i„±e??i-? e?ˆi•?i„? e??i??i?? e¶„e?…i•?e?? i??e??i-?i§ˆi§ˆ i•Si??i??e??i?? e°?e?…i??is•i?? i ˆi•?

e? i?? iz?e‹¤eS” i??iz?e?„ iz?e‹¤ . i¦‰ , e?°i? i??i‹ i™?e?™i?? i¤‘i†?e?°i-…i-?i„? e?” i? e¦¬i•?e? i™?e°?i•?e??

i§„i-‰e??e‹¤eS” e??i??e‹¤ .

Export and internationalisation have a positive important consequence on invention. To stay competitory on the international market, a company has no another pick than to constantly innovate. ( Becheikh, p. 653 )

Today, in-house research and development ( R & A ; D ) is mostly admitted to be a important determiner of invention. The function that internal R & A ; D plays as an invention determiner is varied. It helps companies to make, exploit and transform new cognition into merchandises and/or procedures. It besides helps them to absorb new engineerings looking on the market and to pull collaborative spouses. Besides, making R & A ; D internally is peculiarly of import for invention in new-technology scenes where it is peculiarly hard to get new engineerings produced by rivals ( Becheikh, p. 655 ) .

Hypothesis 1.

Hypothesis 2.

2.2 Industry-specific differences

This position is most frequently represented by Porter ( 1980 ) and it emphasizes industry conditions, which it believes determine house schemes and public presentations. This survey will look into market concentration and easiness of entry. ( Becheikh. P. 657 ) .

Hypothesis 3.

Hypothesis 4.

Significant consequences suggest that industry concentration has a negative consequence on invention.

A geographic concentration of rival houses may supply cognition resources to cut down the uncertainness associated with advanced activity. A geographic concentration of rival houses appears to ease networking and job resolution and progress the province of cognition in the industry ( Porter 1990 ) .

There is a certain component of serendipity in the hunt for relevant information. Shimshoni ( 1966 ) argues that the larger the figure of accomplishments and involvements represented in a given geographical country, the greater the chance of brushs that may take fruitful information exchanges. Firms located in countries with the scope of information beginnings to heighten the invention procedure will recognize lower hunt costs in obtaining relevant information.

There are two forms related to the consequence of industry construction.

Scumpeter Mark I are characterized by low entry barriers and a high competition degree. In these industries, new entrepreneurial houses are the major pioneers. This industry has shown positive consequence on invention in the fabrication sector.

In Scumpeter Mark II industries, economic systems of graduated table rise entry barriers, prefering big established houses which use their monopolistic power and accumulated cognition, resources and competences to travel to the head of the invention procedure. In this instance, industry is concentrated in the custodies of a limited figure of companies and will bit by bit travel to a stable market where the market portions are harmoniously negotiated and attributed. It is therefore counterproductive and less than desirable to present new merchandises on the market since they will upset the attained equilibrium. ( Becheikh. P. 657 )

The menace of entry with new or higher-quality merchandises can impact officeholders ‘ inducements to put in R & A ; D or other inducements associated with merchandise invention. ( Leaderman, p. 608 ) .

2.3 Institutional differences

The part where a house is based has a important consequence on its advanced capacity.

( Therefore, this paper through empirical observation examines the determiners of the merchandise invention in the group of states that are in the same phase of development )

These determiners create the context in which houses are compete.

Hypothesis 5.

Hypothesis 6.

Proximity to possible spouses such as providers, clients, universities, R & A ; D and fiscal establishments significantly and positively influences invention. Proximity facilitates silent cognition transportation, reduces communicating costs, supports interpersonal interactions, and develops trust and a societal capital between spouses which reduces the hazard and uncertainness related to invention. ( Becheikh, p. 658 )

e·?eY¬e?ˆe?? e?°i?? e…?e¬?e“¤e??eS” e‹¤e??e?? it includes institutional factors in add-on to sing industry- and resource-based factors to supply more comprehensive apprehension to merchandise invention procedure and result.


H1-1: The R & A ; D attempts by houses are positively correlated with merchandise invention.

H1-2: The size of houses is positively correlated with merchandise invention.

H2-1: The market concentration is positively correlated with merchandise invention.

H2-2: The easiness of steadfast entry characterized by regulative index is positively correlated with merchandise invention.

H3-1: The rational belongings protection has positive effects on the degree of merchandise invention.

H3-2: The handiness to fiscal services has positive effects on the degree of merchandise invention.

H3-3: The presence of quality research establishments has positive effects on the degree of merchandise invention.

H4-1: The rational belongings protection will beef up the relationship between house capableness and merchandise invention.

H4-2: The handiness of fiscal service will beef up the relationship between house capableness and merchandise invention.

H4-3: The presence of quality research establishments will beef up the relationship between house capableness and merchandise invention.

3. Methodology

3.1. Research methodological analysis and sample

This survey uses the firm-level informations that come from the World Bank ‘s Business Environment and Enterprise Performance Surveys ( BEEPS ) . This survey merely focuses on houses that are in fabricating sector. The entire figure of houses included in this database was 25,806 and it was surveyed over 68 different states.

Harmonizing to Porter, there are four wide properties of a state that shape the environment in which local houses compete that promote or hinder the creative activity of competitory advantage: factor conditions, demand conditions, related and back uping industries, and house scheme, construction, and competition. These determiners, separately and as a system, make the context in which a state ‘s houses are born and compete. Porter p. 72

Porter points to four different determiners impacting the fight of a national industry: Firm scheme and competition, factor conditions, demand conditions and back uping industries.

Based on this position, this survey focuses on the undermentioned variablesaˆ•intellectual belongings protection, handiness of fiscal services, and quality of research establishments.

i•?i§ˆe§? e??e“ e‚?e??e“¤i?? e°™i?ˆ e??i?ˆ i•„e‹?e‹¤ . e°? e‚?e??e“¤i?ˆ e‹¤e?? phase of developmenti-? iz?e? i??e??i-? e”°e?? e‚?e??e“¤i?? e??iY?e ?i?„ i‚¤is? i?? iz?eS” e°©e?•i?? e°?iz? e‹¤e??e‹¤ . i??e?? e“¤e©? i•?eµ­i?? eµ­e°ˆ e??iY?e ?i?„ i??iS?i‹?i‚¤eS” e°©e?•i?ˆ i??e?„e„¤i‹?i•„i?? e°©e?•e?? e¶„e?…iz? e‹¤e??e‹¤ .

i??e?„e„¤i‹?i•„i-?i„?eS” is°i„ well-functioning infrastructuree‚? institutioni?„ i§“e? iz?eµ­e??i-?e?? e?°i??i ?i?? educationi?„ e??iz?i•?eS” e??i?? eµ­e°ˆe??iY?e ?i?„ i??iS?i‹?i‚¤eS” e°ˆiz? e? e??e? i?‹i?ˆ e°©e?•i?? e? e??i??e? e°?e©?i-? i•?eµ­i?ˆ i??e?? iz?eµ­e??i?? e°›e? iz?eS” iz„e??i?? e§¤is° e†’e? i??e??i?„ i? i§ˆi•?e?° i?„i•? e°©e?•i?ˆ i§ˆi†?i ?i?? innovationi?„ i†µi•?i„?e§? e°ˆeS?i•?e‹¤ . e”°e??i„? e°? e‚?e??i?? phase of developmenti-? e”°e?? i??i‚°i„±i?„ i¦?e?ˆi‹?i‚¤e? eµ­e°ˆe??iY?e ?i?„ i??iS?i‹?i‚¬ i?? iz?eS” e°©e?•i?ˆ e‹¤e??e‹¤e? i• i?? iz?e‹¤ . Although less-advanced states can still better their productiveness by following bing engineerings or doing incremental betterment in other countries, for those that have reached the invention phase of development, this is no longer sufficient for increasing productiveness. ( p.8, the planetary fight index 2010-2011 )

World Economic Forumi-?i„?eS” eµ­e°ˆe“¤i?„ 3e°ˆi§ˆ phase of developmenti??e?? e‚?e?„i-? e‘?i-?e‹¤ : factor-driven economic systems, efficiency goaded economic systems, and innovation-driven economic systems.

e”°e??i„? i?? e…?e¬?i-?i„?eS” e°™i?ˆ invention phase of developmenti-? iz?eS” e‚?e??e“¤i?„ e?ˆi??i??e?? i-?e- i•? institutional factorse°ˆ merchandise innovationi?„ i?‰i§„i•?eS” i§ˆe?? i‚?iZ?e??e? iz? i•?e‹¤ .

Which factors play more of import function as determiner of merchandise invention? Previous empirical research show no consistence.

Equally far as apportioning states into different phases of development, this paper implements the same two standards that are used in the Global Competitiveness Report 2010-2011 by the World Economic Forum. By utilizing these standards, the study divided states into 3 phases: factor goaded economic systems ( present 1 ) , efficiency driven economic systems ( present 2 ) , and invention driven economic systems ( present 3 ) .

exports. If the entire exports of mineral goods exceed more than 70 per centum, it means that the state to a great extent export primary merchandises and that state would fall into factor driven phase.

The income thresholds used are shown in the tabular array below

Table 1: Income thresholds for each phase of development

Phase of Development

GDP per capita ( in US $ )

Phase 1: Factor driven

& lt ; 3,000

Phase 2: Efficiency driven

3,000 – 17,000

Phase 3: Invention driven

& gt ; 17,000

The following measure is to choose sample states among 68 states surveyed in BEEPS. For the intent of this survey, 5 states were selected in each phase. The following tabular array indicates the list of selected countries/economies at each phase of development.

Table 2: List of sample countries/economies at each phase of development

Phase of Development

States ( study twelvemonth )

Number of houses

Phase 3: Invention driven

Czech Republic ( 2002, 2005 )


Germany ( 2005 )


Greece ( 2005 )


Ireland ( 2005 )


Korea, Rep. ( 2005 )


Portugal ( 2005 )


Slovenia ( 2002, 2005 )


Spain ( 2005 )




( p. 9 )

As states move into the innovation-driven phase, rewards will hold risen by so much that they are able to prolong those higher rewards and the associated criterion of populating merely if their concerns are able to vie with new and alone merchandises. At this phase, companies must vie by bring forthing new and different goods through invention.

3.2. Measurement of variables

For each variables, this survey uses following measuring.

Table 3: Measurement of variables





Independent Variables

Firm capableness

R & A ; D strength

( Q. 57/Q. 58 ) Percentage of R & A ; D passing out of house ‘s entire sale

Firm size

( S. 4, Q. 66 ) the figure of full-time employees

Market environment

Market concentration

‘business denseness ‘

figure of houses per capita

from the World Bank ‘s Doing Business Database ( hypertext transfer protocol: // )

Ease of entry

( Competitive force per unit area )

Regulatory index from the World Bank ‘s Doing Business Database

( steps trouble of firing index, trouble of engaging index, and yearss for get downing a concern )

Regulatory environment affects the costs and timing of house entry

National factor

Intellectual belongings protection

The Executive Opinion Survey ( World Economic Forum )

1-7 Scale

Handiness of fiscal services

The Executive Opinion Survey ( World Economic Forum )

1-7 Scale

Quality of research establishments

The Executive Opinion Survey ( World Economic Forum )

1-7 Scale

Dependent Variable

Merchandise Invention

( Q. 60 )

Whether the house had developed successfully a major new merchandise line over the last 36 months ( dummy variable )

Control Variable

3.3. Consequences

3.4. Discussion

Invention in the fabrication sector is a really complex procedure which is propelled by legion factors.

In add-on to the important figure of explanatory variables, out consequences show that the relationship wishing several of these variables with invention is frequently moderated by the interaction with other variables.

( Becheikh, p. 659 )

For policy shapers, one of the most of import determinations in furthering invention would be to promote competition in the assorted economic sectors by ostracizing entry barriers and forestalling schemes developed by houses from taking to a monopoly or quasi-monopoly state of affairs in the industry. It is besides recommended to put up establishments to assist companies. ( Becheikh, p. 659 )

3.5. Restrictions

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