Research Policy 38 (2009) 802–812
Contents lists available at ScienceDirect
Research Policy
journal homepage: www.elsevier.com/locate/respol
Innovation strategy and performance during economic transition:
Evidences in Beijing, China
Jian Cheng GUAN a , Richard C.M. YAM b,∗ , Esther P.Y. Tang c , Antonio K.W. Lau d,∗
a
School of Management, Fudan University, Shanghai, China
Department of Manufacturing Engineering and Engineering Management, City University of Hong Kong, Hong Kong
Department of Management and Marketing, The Hong Kong Polytechnic University, Hong Kong
d
Department of Manufacturing Engineering and Engineering Management, City University of Hong Kong, Hong Kong
b
c
a r t i c l e
i n f o
Article history:
Received 2 March 2006
Received in revised form 24 October 2008
Accepted 23 December 2008
Available online 24 February 2009
Keywords:
Innovation strategy
China
Innovation
Innovation performance
Strategic transition
a b s t r a c t
This paper evaluates the relevance of innovation strategy to various categories of Chinese firms and investigates its relationship with innovation performance during the economic transition of the 1990s. Data
from 1244 Chinese firms in Beijing are used to ascertain the relative importance of different innovation objectives, along with the innovation strategies adopted by manufacturing firms. Results show that
innovation activities were confined to the domestic sphere and mainly directed at quality improvement.
Chinese manufacturing firms which obtained support from the government through the high-tech firm
accreditation system generally perform better. They had already started moving away from a reliance
on imported technology and equipment, and using indigenous R&D efforts to innovate for the coming
market economy.
Crown Copyright © 2009 Published by Elsevier B.V. All rights reserved.
1. Introduction
Industrial innovation and its effective diffusion play a vital role in
the economic development and competitiveness of nations, regions
and enterprises. Innovation is also one of the top government policy
agendas today (Cooke et al., 2003). While many government policies have focused on the supply of innovation inputs and support
instruments, and on the development of formal public institutions
(e.g. publicly funded R&D centers, technology transfers, education and training, and marketing in foreign markets) (Heidenreich,
2003), they usually neglect firm innovation orientations and strategies, absorptive capabilities, and specific demands in the region
(Todtling and Trippl, 2005; Howells, 2005). It is interesting to
note that in developing innovation systems, many governments
tend to formally implement a vast array of science and technology
(S&T) policies, S&T programs, government funding for R&D activities and other related infrastructure, and appear to expect that this
top-down approach will provide positive results in terms of innovation outputs (e.g. patents, innovation sales and rates) within these
systems. Much of the policy literature identifies this type of gov-
∗ Corresponding authors.
E-mail addresses: guanjianch@fudan.edu.cn (J.C. GUAN), mery@cityu.edu.hk
(R.C.M. YAM), msesther@polyu.edu.hk (E.P.Y. Tang), melkwa@cityu.edu.hk
(A.K.W. Lau).
ernment policy across regions in Asia, Europe and North America
(Cooke et al., 2003). However, until the enterprises in a particular region have appropriate absorptive capabilities, resources and a
strategic orientation to innovate, it is difficult for innovation policy
to have any positive effect on innovation performance. For example, if the enterprises in a particular region are very thin in terms
of R&D resources, which reduces their absorptive capability (Cohen
and Levinthal, 1990), and their strategic orientation is focused on
incremental and process innovations, it is often ineffective to implement a formal technology transfer policy for the region aimed at
improving innovation outputs (Todtling and Trippl, 2005). From
this perspective, the policy literature should focus on the impact
of the strategic orientation of enterprises towards innovation performance, in a similar way to the strategic management literature
(Burgelman et al., 2004).
Innovation strategy is fundamental to the success of innovation
in manufacturing firms (Gary, 2005; Burgelman et al., 2001). In
a highly competitive environment, an enterprise’s ability to keep
up with the pace of innovation and maintain ongoing innovation efforts are critical to its survival and growth. However, the
maintenance, acquisition and evolution of an enterprise’s capabilities depend on its innovation objectives and the resultant
innovation strategy (Burgelman et al., 2001). A firm’s innovation
orientation guides it in adapting, integrating and reconfiguring its
technological capabilities, managerial capabilities and resources
endowment as appropriate in a changing environment, allowing
0048-7333/$ – see front matter. Crown Copyright © 2009 Published by Elsevier B.V. All rights reserved.
doi:10.1016/j.respol.2008.12.009
J.C. GUAN et al. / Research Policy 38 (2009) 802–812
it to maintain and enhance sustainable innovation (Song et al.,
2005; Dess et al., 1997; Fiegenbaum et al., 1996; Song and Dyer,
1995).
Numerous studies have been carried out with respect to innovation strategy and the relationship between innovation strategy
and performance (Therrien, 2003; Dess et al., 1997; Dess, 1987;
Dess and Robinson, 1984). For example, Dess et al. (1997) used a
field study to explore the nature of entrepreneurial strategy making
and its linkages with the strategic environment and performance.
Therrien (2003) found that if a firm’s innovation strategy is aimed
at developing internal R&D and using information sourced from
its R&D efforts, the firm usually develops radically innovative products. Firm innovation strategies that focus on the use of information
sourced from public laboratories and collaborations with universities also lead to the creation of radical innovations. However, if
a firm’s innovation strategy focuses solely on the use of private
sources of information and existing internal resources, it finds it
difficult to develop breakthrough innovations. Using knowledgebased theory, Poon and MacPherson (2005) found that innovation
strategies targeted at applied research, new product development
and marketing capabilities are positively related to innovation performance in terms of the number of patents and annual growth in
sales. Focusing specifically on new product innovation strategy, Li
and Atuahene-Gima (2001) found that product innovation strategy
has a positive effect on product performance and that government
support plays a significant role in enhancing the effectiveness of
firms’ product innovation strategies.
Innovation strategies can be characterized in terms of technological leadership or followership, market position and timing
of market entry, and the scope and rate of new product development (Burgelman et al., 2001). To facilitate and support its
technological innovation strategies, an organization needs a special
mix of assets or resources that encompasses technology, products, processes, knowledge, experience and organization (Guan and
Ma, 2003; Burgelman et al., 2001). Therefore, investigating firm
perceptions of innovation strategies and their impact on organizational performance should be one of the most important tasks in
survey-based innovation research. For instance, the OSLO manual
“Proposed Guidelines for Collecting and Integrating Technological
Innovation Data” lists the investigation of strategies as the first
of six areas in innovation surveys (OECD, 1997, p. 39). This manual proposes that surveyed firms be asked how they perceive the
importance of various strategic orientations to innovation. The
strategic orientations of firms in the course of their innovation
processes should be strongly emphasized in such surveys, because
guiding the innovation activities of firms is of great significance to
policy.
Nevertheless, the main research stream in the policy literature
seems to neglect the linkage between firms’ innovation strategies
and innovation performance in a particular region. The existing literature on this subject relies heavily on case studies, anecdotes and
consultants’ frameworks, with little in the way of robust empirical
findings, especially in a Chinese context. Therefore, very limited
progress in China has been made in assessing firms’ innovation
objectives and strategies and their impact on organizational performance. Without evaluating enterprises’ strategic orientation
towards innovation, S&T policy mechanisms may fail to support
firms’ strategic intents. In particular, in the current period when
China’s manufacturing sector is driving economic growth and is further strengthened by S&T (Zhou and Leydesdorff, 2005), it is very
important for the Chinese government to understand the strategic
focus of Chinese manufacturers to develop appropriate S&T policy. Thus, this study aims to evaluate the relevance of innovation
strategy to various categories of Chinese firms and the relationship
between innovation strategy and the innovation performance of
Chinese firms in a particular region.
803
1.1. Chinese manufacturing
Under China’s central planning regime, while R&D was mainly
carried out by research institutes that were largely independent
of industry (Brockhoff and Guan, 1996), R&D results were implemented and manufacturing was undertaken by industrial factories.
During the planned economy period, neither market competition
nor other operational efficiency-based criteria for organizational
performance existed. State-owned enterprises (SOEs), which represented a totally dominant share of the market in China, enjoyed
preferential treatment in terms of policy and resource allocation
that was basically extended through government policies and regulations on matters such as energy, raw materials, equipment and
manpower, etc. Therefore, during that period of time, SOE managers
did not need to make any essential strategic choices or decisions,
because they were merely required to carry out tasks assigned by
the government and its agencies under the centrally planned system that existed.
By the late 1970s, China had come to recognize the inefficiencies
and low level of effectiveness of such a centrally planned economy in practice (Liu and White, 2001). The government therefore
initiated a series of reforms to China’s economy, and particularly
to its organizational mechanisms, to narrow the technological and
economic gap between China and Western countries. During this
period, many different forms of enterprise (such as private, collective, township and village enterprises, and joint ventures in
particular) competed directly with the SOEs in many industries.
Over the last two decades, China’s reforms have resulted in the
economy growing at a remarkable pace. High-tech firms, which
mostly consist of new emerging firms, have played a substantial
role and have contributed to this growth. It has been reported, for
example, that more than two thirds of all value added to industries in Beijing in recent years has been provided by high-tech
firms (Annual Report of Science and Technology Development of
China, 2001–2003). To a great extent, this growth can be put down
to the relaxation of previous policy pressures and new regulations
that have spurred the development of high-tech firms. As the formerly socialist country of China has moved from a centrally planned
economy towards a more market-driven model, resource allocation
profiles have also changed to a significant extent and a large proportion of resource allocations are now market-driven, a trend that
appears to have favored high-tech firms (Annual Report of Science
and Technology Development of China, 2001–2003).
At the same time, these reforms have substantially changed
the rules of the game, especially for the SOEs. Chinese SOEs are
structured quite differently from their typical Western counterparts (Henley and Nyaw, 1986). Nominally, the general public
enjoy property rights in these enterprises. As a result, government regulatory agencies are in a position to invoke these property
rights, in the name of the public interest, to intervene in the
decision-making process (Child and Lu, 1996). Managers of Chinese SOEs are commonly loaded with objectives that are only
partially related to market requirements. Only after the SOEs have
met production and performance targets can they produce other
goods/services to be sold in the market. Although the reforms
have broadened the roles of company directors and administrators through contractual management and responsibility systems
that include a “performance-based pay” system, Communist Party
secretaries who work in such enterprises continue to play an important role in the organization’s authority structure. Their presence
allows the party to be an active participant in most decisions
(Schermerhorn and Nyaw, 1991). Because SOE managers are often
political appointees, they tend to be conservative and value security over innovation. Consequently, SOEs managers are more likely
to avoid decisions involving risk and are less innovative when faced
with an uncertain environment.
804
J.C. GUAN et al. / Research Policy 38 (2009) 802–812
However, SOE managers have faced a rapidly changing political
environment that has become much less favorable to them, with
many new challenges arising from the co-existence of various economic regimes. Meanwhile, other emerging economic regimes have
made more ambitious strategic moves that have forced SOE managers to make their own strategic choices instead of being directed
by the central government. Many SOEs have lost their previous
monopolistic advantages, although they continue to enjoy priority access to resources (but to a much lesser extent), given that the
socialist legacy continues to exert a leaden impact on industrial
innovation. To sustain the transition process, the Chinese government has been forced to pay more attention to developing S&T
policy that fits the strategic orientations of different forms of enterprises, particularly those of SOEs.
2. An empirical study
This study, which was conducted in 1996 against the background
of China’s economic and organizational transition, was aimed at
gearing the innovation system for the late 1990s and 2000s. The
study is one of the very rare instances of a large-scale survey conducted more than 10 years ago by official Chinese government
agencies (the Chinese National Science and Technology Committee (CNSTC) and the State Statistics Bureau (SSB)) in conjunction
with a university. It represents a very valuable historical snapshot of China’s innovation development and performance in the
most critical technological innovation region of China. This paper
provides empirical evidence of the innovation development and
performance of firms in Beijing, China during the first 15 years of
China’s period of economic transition since the early 1980s. The
authors attempt to fill an important gap in the strategy research
area of innovation management during the turbulent transition era
in China of recent years, a subject that has seldom been reported in
the literature.
2.1. Measurements
Three major factors relating to innovation activities in firms
are investigated, namely: the objectives of innovation, innovation
strategies, and innovation performance.
2.1.1. Innovation objectives
A firm’s reasons for engaging in innovation activities should be
identified via its economic objectives, in terms of products and markets. How the firm rates a number of goals that process or product
innovation can bring within its reach relates to all its innovation
activities, and should therefore be measured. This study is mainly
based on the guidelines for collecting and interpreting technological innovation data given in the OECD’s OSLO Manual (1992) to
identify relevant innovation objectives. Based on the survey experience of the OECD, it lists several important economic objectives
of innovation that are believed to be relevant to firms’ innovation activities. Experts and officers of the Chinese National Science
and Technology Committee (CNSTC), the State Statistics Bureau
(SSB) and the Beijing S&T Committee, who were responsible for the
survey and oversaw industrial innovation at their respective institutions, reviewed the list and provided suggestions. Focus group
discussions were held to further understand the general innovation
orientations of Chinese manufacturing firms during the transition
period. Finally, 13 key innovation objectives, which were appropriate in the Chinese economic transition context, were identified as
follows.
1. Develop radically innovative product.
2. Introduce niche products or technology.
3. Improve production processes for existing products.
4. Replace products being phased out.
5. Maintain or increase market share.
6. Exploit new domestic market.
7. Exploit new international market.
8. Improve product quality.
9. Improve existing technology to reduce reliance on imported
equipment/know-how.
10. Reduce consumption of raw materials.
11. Reduce energy consumption.
12. Improve working conditions.
13. Reduce production cost.
Objectives 1 and 2 are in line with the firm goal of extend its
existing product range by way of innovation. Objectives 5, 6 and 7
reflect the firm goal of increasing sales and market share through
innovation. Objectives 10, 11 and 13 are about cost cutting. Objective 9, “improve existing technology to reduce reliance on imported
equipment/know-how,” is quite unique, as it reflects the situation
of most Chinese firms during the 1990s, whereby they had to spend
a lot of money to acquire new equipment or know-how from developed countries.
Subjective measures such as the Likert-type scale were used to
measure the emphasis on various innovation orientations in previous research (Yam et al., 2004; Guan and Ma, 2003; Powell and
Micallef, 1997; Dess, 1987). This study used a 5-point Likert-scale to
evaluate the importance of each of the above innovation objectives.
The higher the scale value, the more important is that innovation
objective (‘1’ means not important at all and ‘5’ means very important).
2.1.2. Innovation strategy
The four distinct strategic types proposed by Miles and Snow
(1978) – prospector, analyzer, reactor, and defender – were adapted
in this study to describe a firm’s strategic position. Through discussions with experts and a review of relevant secondary data, a list
of innovation strategies which were generally adopted by Chinese
manufacturing firms during the transition period was identified as
follows.
(1) Leading innovator—maintains the leading technological position in the relevant product domain; values being first and
taking risk in new products and market areas.
(2) Follower—monitors the actions of the leader and is second-in
with a more cost-efficient product.
(3) Imitator—conducts its business by imitating new products and
new processes (technologies) of innovative firms.
(4) Defender—lags behind the rest of the industry when it comes to
innovative behavior, protects its products and market domains
by offering excellent quality and superior service with current
technology.
(5) Technology importer—imports technology from advanced
countries.
2.1.3. Innovation performance
There are various measurement methods for and numerous
debates about innovation output indicators (Coombs, 1996). Following the OSLO manual (OECD, 1992), this study used two
innovation performance indicators, namely the ratio of innovation
sales and the innovation rate, to represent the economic significance of innovation. The ratio of innovation sales is defined as the
percentage of new product sales over total product sales. The innovation rate is defined as the percentage calculated by dividing the
number of new products by the total number of products. According
to the OSLO manual (OECD, 1992), the number of innovations alone
is not a good indicator of innovation performance because there
J.C. GUAN et al. / Research Policy 38 (2009) 802–812
are significant differences between such numbers across industries.
The innovation rate is a better measure, as it shows the relative
innovative strength of the firms surveyed. A firm’s competitive
advantage could come from its efficiency in new product development and the capabilities of such products (Guan, 2002; Lawless
and Fisher, 1990).
Improvements in innovation performance are rooted in the consistent and appropriate adoption of a firm’s innovation strategies.
Under most circumstances, high performance firms have a clearer
and more consistent strategic orientation when compared with low
performance firms (Burgelman et al., 2004). The above two indicators have been used extensively in innovation surveys carried out
both in Western countries (Kristensen, 1994; Archibugi et al., 1991;
Napolitano, 1991) and in China (Guan, 2002).
2.2. Questionnaire
The questionnaire used in this study consisted of four parts: (1)
innovation objectives; (2) innovation strategy; (3) innovation performance; and (4) firm characteristics. The measures for the first
three parts have already been described in the previous section.
Firm characteristics include type (high-tech or not), ownership (SOE
or not), size, year of establishment, and resources for innovation
(has R&D or not). Before conducting the main survey, pilot-tests of
the questionnaire were carried out in eight enterprises. The questionnaire was then revised based on the feedback received, in terms
of clarity of understanding and question format, to avoid ambiguity
in the questionnaire. The revised questionnaire was then sent to the
target respondents as described below.
2.3. Population and sampling
For the following reasons, the scope of this paper is confined
to Beijing. First, Beijing is the leading S&T and economic region
in China (Research Report on S&T Development in China, 2000;
Annual Report of Science and Technology Development of China,
2001–2003). Second, Beijing, being the nation’s capital, is recognized as the most innovative region in China (Research Group of
Chinese S&T Development Strategy, 2002). Dozens of top universities and research institutes which possess a powerful ability to
create new knowledge (Guan et al., 2005) are located in Beijing.
Almost 40% of the major science and technology (S&T) initiatives in mainland China are pursued in Beijing (Research Group
of Chinese S&T Development Strategy, 2002). Third, Beijing’s economic performance, in terms of innovation, ranks second among
the 31 provinces of the country as a whole, just after Shanghai
(Report on Regional Innovation Capabilities, 2002, pp. 25–28.).
Fourth, the innovation performance of high-tech firms in the Beijing high-tech development zone is the best when compared to the
other 51 national high-tech development zones located in other
provinces (Research Report on S&T Development in China, 2000;
Annual Report of Science and Technology Development of China,
2001–2003). Fifth, the largest and most active high- and new-tech
economic zone in China is located in the Beijing area, which shows
that Beijing is playing an important role in technology development and economic growth in mainland China (Research Group of
Chinese S&T Development Strategy, 2002). Finally, in China, substantial elements of national innovation policy are formulated on
the basis of experience gained and lessons learned in Beijing (Guan
et al., 2005).
Initially, the target population for this study covered 120,000
industrial firms. Following detailed discussions with industrial and
academic experts and with officials from the CNSTC and the SSB,
it was decided that the survey would focus on the two following
types of firms:
805
a. All high-tech enterprises engaged (at least partly) in manufacturing work. Annual sales for each enterprise must exceed
RMB500,000 (based on 1995 figures). In addition, these enterprises should be registered at the state or provincial level. To
be accredited by CNSTC as a high-tech firm, the firm’s ratio of
R&D expenditure to total sales is required to be over 3% in principle. Here, high-tech refers to technologies in the biological,
life, computer and communications, optical and electrical, electronic, CIMS, new materials, aeronautics and space, weapons and
nuclear fields.
b. Large- and medium-sized enterprises (LME) in the manufacturing industries. In China, the classification of enterprises by size is
traditionally based on production capacity (Guan, 2002) rather
than on the number of employees or sales, as it is in Western
countries.
In Beijing, state-owned large and medium-sized enterprises outside the high-tech development zone are monitored by the Beijing
S&T Committee. High-tech enterprises within the high-tech development zone of Beijing are directly governed by the Zhongguancun
Management Committee. Therefore, questionnaires were sent to
462 state-owned large and medium-sized enterprises (LMEs) in
Beijing outside the high-tech development zone via the S&T Committee, and to 1750 high-tech enterprises within the high-tech
development zone of Beijing through the Zhongguancun Management Committee. All these enterprises satisfied the prerequisites
described earlier, and covered all manufacturing sectors. The target respondents for the strategic orientation part of the survey
were mainly presidents or CEOs of the firms surveyed, and those
for the part on innovation performance were addressed to finance
department managers.
The response rate was much higher than that for many similar studies carried out in Western countries, with response rates
of 48.5% (224 out of 462) for LMEs in Beijing and 59.1% (1034 out
of 1750) for high-tech firms in the Beijing high-tech development
zone. This high response rate is due to the fact that the survey was
mandatory under the Chinese Statistics Law, so firms were obliged
to complete the questionnaire. In addition, the Beijing Science and
Technology Committee (BSTC) supported the study and organized a
training course for the survey. After follow-up telephone calls were
made to rectify unclear responses, 1244 out of the 1258 respondent
firms provided valid answers for this study.
3. Sample profile
As described in Table 1, of the 1244 valid responses, 1065 were
from high-tech firms and the remaining 179 were from general
firms. The respondents included 580 SOEs and 664 non-SOEs. Private economic firms accounted for a relatively high proportion of
the high-tech firms surveyed, with 633 of the total of 1065 hightech firms (60%) being non-SOEs. The opposite was true for general
firms, as only 31 out of the 179 general firms surveyed (175) were
non-SOEs.
The existence of an R&D department is an indicator of the level
of resources a firm devotes to innovation. Among the 1244 firms
surveyed, 914 (73.5%) had an in-house R&D department, which is
quite a high percentage (see Table 2). In addition, Chi-square tests
Table 1
Sample profile.
State-owned firms
Non-state-owned firms
Total
High-tech firms
General firms
432
148
633
31
1065
179
Total
580
664
1244
806
J.C. GUAN et al. / Research Policy 38 (2009) 802–812
Table 2
Percentage of firms having R&D Departments.
All firms
Has R&D department
Has no R&D department
Total number
73.5%
26.5%
1244
High-tech firms
72.3%
27.7%
1065
General firms
SOEs
Non-SOEs
81.0%
19.0%
71.8%
28.2%
75%
25%
179
580
664
Table 3
Importance of different economic objectives of innovation.
Innovation objectives
N = 1244
Mean
S.D.
Maximum
Minimum
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Develop radical innovative product
Introduce niche products or technology
Improve production process
Replace products being phased out
Maintain or increase market share
Exploit new domestic market
Exploit new international market
Improve product quality
Improve existing technology to reduce reliance on imported equipment/technology
Reduce consumption of raw material
Reduce consumption of energies
Improve working conditions
3.9011
3.7540
3.1913
3.3762
4.0442
4.2331
3.4051
4.4317
3.0571
3.4228
3.3400
3.2010
1.1227
1.0638
1.0354
1.1281
1.0126
0.8193
1.2524
0.8429
1.2163
1.0947
1.1135
0.9841
5
5
5
5
5
5
5
5
5
5
5
5
1
1
1
1
1
1
1
1
1
1
1
1
13.
Reduce production cost
4.0482
0.9222
5
1
confirm that the percentage of general firms that had R&D departments (81.0%) was significantly higher than among high-tech firms
(72.3%). By contrast, there was no significant difference between
SOEs and non-SOEs.
4. The importance of different innovation objectives
It can be seen from Table 3 that all innovation objectives were
perceived to be more important than the mediocre position (scale
point 3). In particular, objective 8, “improve product quality,”
received the highest mean score (4.4317). This result suggests that
the primary concern of most Chinese manufacturers at that time
was product quality, which is in line with other research findings
(Guan, 2002).
In addition, the mean score for objective 6, “open up new domestic markets,” was significantly higher than that for objective 7, “open
up new international markets.” This indicates that the competitive
focus for Chinese manufacturing firms was still on the domestic
market during the transition period, and that innovation activities in Chinese firms at that time were concentrated on domestic
demand. Innovation objectives 5, “maintain or increase market
share,” and 13, “reduce production costs” were also perceived to
be highly important. These findings show that Chinese firms were
eager to maintain their existing market positions by lowering production costs during the transition period.
5. Comparisons between different types of firms
Different types of firms may have different primary innovation
objectives (Whitley, 2000) due to variations in innovation patterns
and the operating environment. A t-test is used to compare the
mean scores for innovation objectives between different types of
firms. The surveyed firms are classified into two groups based on
status (high-tech versus general), ownership (SOEs versus nonSOEs), resources for innovation (has R&D department versus no
R&D department) and size (SMEs versus large enterprises).
Table 4
Comparison of high-tech and general firms.
Innovation objectives
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
High-tech firms (N = 1065)
General firms (N = 179)
t-Test
Mean
S.D.
Mean
S.D.
Develop radical innovative product
Introduce niche products or technology
Improve production process
Replace products being phased out
Maintain or increase market share
Exploit new domestic market
Exploit new international market
Improve product quality
Improve existing technology to reduce reliance on imported equipment/technology
Reduce consumption of raw material
Reduce consumption of energies
Improve working conditions
Reduce production cost
3.91
3.69
3.15
3.34
4.03
4.23
3.36
4.40
3.02
3.36
3.26
3.17
3.99
1.098
1.071
1.053
1.128
1.026
0.812
1.251
0.841
1.228
1.102
1.119
0.991
0.932
3.84
4.12
3.41
3.57
4.15
4.26
3.69
4.60
3.28
3.78
3.82
3.41
4.40
1.259
0.940
0.891
1.111
0.927
0.863
1.223
0.837
1.118
0.980
0.951
0.916
0.775
0.813
−5.063**
−3.113**
−2.487*
−1.523
−0.520
−3.334**
−2.954**
−2.716**
−4.712**
−6.271**
−3.05**
−5.528**
Innovation sales
Innovation rate
0.464
0.617
0.439
0.419
0.160
0.313
0.218
0.352
14.410**
10.355**
Remarks: N: sample size; S.D.: Standard deviation. + p < 0.1.
*
p < 0.05;
**
p < 0.01.
J.C. GUAN et al. / Research Policy 38 (2009) 802–812
807
Table 5
Comparison of SOEs and non-SOEs.
Innovation objectives
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
Non-SOEs (N = 664)
SOEs (N = 580)
t-Test
Mean
S.D.
Mean
S.D.
Develop radical innovative product
Introduce niche products or technology
Improve production process
Replace products being phased out
Maintain or increase market share
Exploit new domestic market
Exploit new international market
Improve product quality
Improve existing technology to reduce reliance on imported equipment/technology
Reduce consumption of raw material
Reduce consumption of energies
Improve working conditions
Reduce production cost
3.85
3.69
3.16
3.39
4.09
4.23
3.34
4.42
2.95
3.38
3.27
3.16
4.02
1.120
1.090
1.078
1.127
1.1016
0.850
1.242
0.850
1.205
1.116
1.114
1.000
0.912
3.96
3.83
3.23
3.35
3.99
4.24
3.48
4.45
3.18
3.46
3.42
3.24
4.08
1.124
1.029
0.985
1.129
1.008
0.783
1.262
0.835
1.220
1.069
1.106
0.965
0.983
−1.762+
−2.306*
−1.223
0.659
1.582
−0.165
−1.940+
−0.696
−3.280**
−1.295
−2.503*
0.165
0.185
Innovation sales
Innovation rate
0.463
0.635
0.436
0.418
0.372
0.502
0.413
0.418
3.781**
5.586**
Remarks: N: sample size; S.D.: Standard deviation.
+
p < 0.1;
*
p < 0.05;
**
p < 0.01.
5.1. High-tech firms versus general firms
Table 4 shows that the innovation objectives (which reflect strategy orientations) of high-tech firms were very different from those
of general firms. The perceived importance of 10 out of the 13
innovation objectives were rated significantly higher by the general firms than by the high-tech firms. There was no significant
difference between these two types of firms only in terms of the
3 following reasons for innovation: “develop radically innovative
products,” “maintain or increase market share” and “exploit new
domestic markets.”
On the other hand, the innovation performance of high-tech
firms was significantly better than that of general firms. As shown
in Table 4, the mean innovation sales of high-tech firms (0.464)
were almost three times those of general firms (0.160) and the mean
innovation rate of high-tech firms (0.617) was about double that of
general firms (0.313). The general firms, of which 82.7% were SOEs,
were clearly trying hard to keep up with the high-tech firms, as
reflected by the fact that the biggest difference between these two
types of firms lay in the cost-cutting objectives. These objectives
are “reduce energy consumption,” “reduce production costs” and
“reduce consumption of raw materials.” The high-tech firms might
have lost some innovation impetus because they enjoyed privileges
extended by the Chinese government after gaining CNSTC accreditation. High-tech firms were in a better position than general firms
in terms of the acquisition of innovation funds and their ability to
obtain more policy support for innovation activities. It is possible
that during the transition period, general firms were unable to make
clear-cut decisions on their innovation directions, as management
talent was not available at that time (OECD, 2002). As a result, general firms loosely targeted many different economic objectives, and
always rated these objectives as being more important than did the
high-tech firms. Irrespective of firm status, improving product quality was still the most important primary objective when engaging
in innovation activities.
5.2. State-owned enterprises versus private enterprises
Table 5 shows the t-test results of the comparison of these
two kinds of firms. They differed significantly in terms of
the importance of “introducing niche products or technology,”
“improving existing technology to reduce reliance on imported
equipment/technology” and “reducing energy consumption.” The
differences were not remarkable, as the t values are quite small. The
biggest difference lay in their desire to reduce reliance on imported
equipment/technology. The SOEs put more emphasis on this aspect
than the non-SOEs, probably because the SOEs had spent a lot of
money to acquire know-how and equipment.
The innovation performance of non-SOEs seems to have been
better than that of SOEs, as reflected by the comparison of innovation sales indices and innovation rates shown in Table 5. SOEs often
enjoyed more support from the government in areas such as acquisition of import and export rights, priority access to resources, and
the use of distribution channels. It is slightly surprising to find that
they did not perform as well as the non-SOEs. However, a more
in-depth analysis of the data using two-way ANOVA reveals that
there was no significant difference between SOEs and non-SOEs in
terms of innovation performance, both within the group of hightech firms and within the group of general firms. The non-SOEs
performed better simply because the majority of them (95%) were
high-tech firms.
High-tech firms
General firms
Overall
Innovation sales
Innovation rate
SOEs
Non-SOEs
SOEs
Non-SOEs
0.443
0.165
0.372
0.479
0.132
0.463
0.569
0.308
0.502
0.649
0.341
0.635
5.3. Firms with R&D departments versus firms without R&D
departments
Table 6 indicates that firms with R&D departments regarded
most of the listed innovation objectives as being more important
than did firms without R&D departments. Significant differences
are noted in 6 areas: “improve production processes,” “replace
products being phased out,” “maintain or increase market share,”
“exploit new domestic markets,” “improve product quality” and
“reduce production costs.” The biggest difference is found in the
objective of maintaining or increasing market share, followed by the
objective of improving product quality. These findings may indicate
that R&D activities in the Chinese manufacturing industry at that
time mainly focused on marketing, quality and cost improvements
for existing products, areas which to a great extent are related to
incremental innovation.
The innovation performance of firms with R&D departments was
significantly better than that of firms without R&D departments,
808
J.C. GUAN et al. / Research Policy 38 (2009) 802–812
Table 6
Comparison of firms with R&D departments and firms without R&D department.
Innovation objectives
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
Firms with R&D
departments (N = 915)
Firms without R&D
department (N = 329)
t-Test
Mean
S.D.
Mean
S.D.
Develop radical innovative product
Introduce niche products or technology
Improve production process
Replace products being phased out
Maintain or increase market share
Exploit new domestic market
Exploit new international market
Improve product quality
Improve existing technology to reduce reliance on imported
equipment/technology
Reduce consumption of raw material
Reduce consumption of energies
Improve working conditions
Reduce production cost
3.93
3.74
3.23
3.42
4.12
4.27
3.44
4.49
3.06
1.123
1.077
1.031
1.123
.983
0.804
1.267
0.789
1.215
3.82
3.80
3.08
3.25
3.82
4.14
3.31
4.27
3.05
1.120
1.025
1.040
1.133
1.062
0.853
1.207
0.960
1.221
1.459
−0.902
2.235*
2.442*
4.643**
2.492*
1.659+
4.416**
0.041
3.43
3.33
3.20
4.09
1.099
1.121
0.991
0.906
3.41
3.37
3.21
3.93
1.085
1.095
0.966
0.957
0.183
−0.642
−0.123
2.646**
Innovation sales
Innovation rate
0.463
0.616
0.425
0.407
0.302
0.452
0.414
0.443
5.983**
5.874**
Remarks: N: sample size; S.D.: Standard deviation.
+
p < 0.1;
*
p < 0.05;
**
p < 0.01.
indicating that the existence of an R&D department was essential
to the facilitation of innovation activities by Chinese manufacturing
firms during the transition period.
vation rate and innovation sales. They were probably more flexible
and their future success relied on their ability to innovate. The large
firms might have been complacent, given their existing profitability,
and were not as innovative as their smaller counterparts.
5.4. Small and medium-sized enterprises versus large enterprises
6. Innovation strategy
Firm size is likely to be another important factor affecting
innovation strategy. A comparison is made between small/mediumsized firms (SMEs) and large-scale firms, excluding those firms that
could not be identified by size or did not provide the required
information. Table 7 shows that large-scale firms perceived most
innovation objectives to be more important than did SMEs. There
are significant differences between the two kinds of firms for nine
out of the thirteen innovation objectives. The biggest difference
is noted in the objective of introducing niche products or technology. The large firms put more emphasis on identifying special
or unique products than did the small/medium-sized firms. With
respect to market exploitation of innovations, there are no significant differences between the two kinds of firms. However, the SMEs
performed better than their larger counterparts in terms of inno-
The respondent firms were requested to indicate the innovation strategies they had adopted. The five innovation strategies
described earlier were listed and the respondents were asked to
choose from them. In addition, a compound strategy, representing
a combination of strategies, was put forward for selection by those
who were not sure about their existing strategies. The associations
between innovation strategy adopted and firm characteristics were
further examined and the results are shown in Tables 8 and 9.
Overall, the leading innovator strategy was the most popular and
the imitator strategy was the least popular (see Table 10). In terms
of strategy choice, there was a significant difference between hightech firms and general firms but no difference between SOEs and
non-SOEs (see Table 8). High-tech firms were more prone to adopt
Table 7
Comparison of importance of innovation objectives: SMEs versus large enterprises.
Innovation objectives
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
SME (N = 729)
Large firms (N = 120)
t-Test
Mean
S.D.
Mean
S.D.
Develop radical innovative product
Introduce niche products or technology
Improve production process
Replace products being phased out
Maintain or increase market share
Exploit new domestic market
Exploit new international market
Improve product quality
Improve existing technology to reduce reliance on imported equipment/technology
Reduce consumption of raw material
Reduce consumption of energies
Improve working conditions
Reduce production cost
3.92
3.74
3.17
3.36
4.02
4.25
3.43
4.44
3.03
3.41
3.34
3.17
4.05
1.119
1.031
1.014
1.133
0.993
0.820
1.236
0.798
1.211
1.067
1.089
0.957
0.918
3.93
4.13
3.48
3.58
4.30
4.21
3.61
4.54
3.29
3.68
3.71
3.39
4.28
1.189
0.885
0.916
1.127
0.958
0.943
1.197
0.859
1.103
1.004
0.991
0.955
0.900
−0.051
−4.348**
−3.370**
−2.003*
−2.960**
0.498
−1.522
−1.242
−2.397*
−2.751**
−3.718**
−2.325*
−2.647**
Innovation sales
Innovation rate
0.415
0.586
0.429
0.426
0.276
0.413
0.350
0.408
3.869**
4.124**
Remarks: N: sample size; S.D.: Standard deviation.
*
p < 0.05;
**
p < 0.01.
J.C. GUAN et al. / Research Policy 38 (2009) 802–812
809
Table 8
Innovation strategies: association with high-tech status and ownership.
Strategy
High-tech
General
SOEs
Non-SOEs
Leading innovator
Follower
Imitator
Defender
Technology importer
Compounded strategy
461 (43.2%)
166 (15.6%)
18 (1.7%)
72 (6.8%)
317 (29.8%)
31 (2.9%)
60 (33.5%)
30 (16.8%)
14 (7.8%)
5 (2.8%)
65 (36.3%)
5 (2.8%)
245 (42.2%)
86 (14.8%)
17 (2.9%)
36 (6.2%)
179 (30.9%)
17 (2.9%)
276 (41.5%)
110 (16.6%)
15 (2.2%)
41 (6.2%)
203 (30.6%)
19 (2.9%)
Total
1065 (100%)
179 (100%
580 (100%)
664 (100%)
Test of association
High-tech status and strategy: 2 = 28.665**
Ownership of firm and strategy: 2 = 0.996
Remarks: * p < 0.05.
**
p < 0.01.
Table 9
Innovation strategies: association with R&D resource and firm size.
Strategy
With R&D unit
Without R&D unit
SME
Large firms
Leading innovator
Follower
Imitator
Defender
Technology importer
Compounded strategy
410 (44.9%)
133 (14.6%)
17 (1.9%)
43 (4.7%)
287 (31.4%)
24 (2.6%)
111 (33.8%)
63 (19.2%)
14 (4.3%)
34 (10.4%)
93 (28.4%)
13 (4.0%)
310 (42.5%)
116 (15.9)
13 (1.8%)
42 (5.8%)
228 (31.1%)
20 (2.7%)
48 (40.7%)
19 (16.1%)
9 (7.6%)
5 (4.2%)
35 (29.7%)
2 (1.7%)
Total
914 (100%)
328 (100%)
729 (100%)
118 (100%)
Test of association
*
**
Size and strategy: 2 = 14.378*
R&D and strategy: 2 = 30.568**
p < 0.05;
p < 0.01.
the leading innovator strategy, whereas general firms preferred the
technology importer strategy. This indicates that a large proportion of general firms were still relying on imported technology and
equipment for their innovation activities during that period. This
result is consistent with previous research findings (Guan, 2002).
The percentage of imitators was higher among the general firms
(7.8%) than among the high-tech firms (1.7%). A significantly higher
proportion of defenders were found among high-tech firms (6.8%)
than among general firms (2.8%). Thus, during the transition period,
a small number of high-tech enterprises were still focusing on the
defender approach, probably due to their limited capabilities and
resources. Most firms, irrespective of whether they were high-tech
or general firms, gradually abandoned their traditional imitator
roles in the technological innovation sphere and turned to more
aggressive technology strategies, such as by becoming leading innovators.
In terms of strategy choice, there were significant differences
between firms with R&D departments and firms without R&D
departments, as well as between SMEs and large firms (see Table 9).
Firms with R&D departments aggressively developed themselves
as leading innovators in their respective fields. 44.9% of such firms
had adopted leading innovator strategies, whereas the proportion
for firms without R&D departments was only 33.8%. In addition,
a higher proportion of firms without R&D departments (10.4%)
adopted defender positions than did firms with R&D departments
(4.75%).
These differences between SMEs and large firms, though significant, are not remarkable. A somewhat unexpected finding is that
the percentage of firms that took up imitator positions was higher
among large firms (7.6%) than among SMEs (1.8%). These large firms
might have done well in areas other than innovation. Nevertheless,
as shown earlier in Table 7, the innovation performance of SMEs
was significantly better than that of large firms.
7. Innovation strategy and innovation performance
The innovation performance of firms adopting different innovation strategies is compared via one-way ANOVA. The results shown
in Table 10 indicate significant group differences. Innovation rate
and innovation sales were the highest for firms that adopted a
leading innovator strategy. Imitators, on the other hand, achieved
the lowest level of innovation performance. Such a phenomenon
is logical and proves that the leading innovator strategy is effective in achieving better innovation performance. This strategy was
adopted by almost 42% of the sample firms. The second most
popular strategy was to adopt the role of a technology importer
Table 10
Relationship between innovation strategy and innovation performance.
Innovation strategy adopted
No. of firms (%)
Innovation sales
Innovation rate
Leading innovator
Follower
Imitator
Defender
Technology importer
Compounded strategy
Overall
521 (41.9%)
196 (15.7%)
32 (2.6%)
77 (6.2%)
382 (30.7%)
36 (2.9%)
1244
0.502
0.374
0.183
0.288
0.391
0.306
0.421
0.633
0.578
0.272
0.432
0.549
0.515
0.573
F = 8.723**
F = 7.494**
ANOVA results
*
Remarks: p < 0.05,
**
p < 0.01.
810
J.C. GUAN et al. / Research Policy 38 (2009) 802–812
Table 11
Comparison of leading innovators and technology importers.
Innovation objectives
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
Leading innovators (N = 521)
Technology importers (N = 380)
t-Test
Mean
S.D.
Mean
S.D.
Develop radical innovative product
Introduce niche products or technology
Improve production process
Replace products being phased out
Maintain or increase market share
Exploit new domestic market
Exploit new international market
Improve product quality
Improve existing technology to reduce reliance on
imported equipment/technology
Reduce consumption of raw material
Reduce consumption of energies
Improve working conditions
Reduce production cost
4.13
3.68
3.23
3.41
4.18
4.33
3.61
4.50
3.09
1.023
1.046
1.019
1.127
0.923
0.726
1.191
0.742
1.226
3.73
3.89
3.22
3.42
3.95
4.15
3.37
4.44
3.17
1.149
1.070
1.074
1.142
1.079
0.869
1.289
0.871
1.228
5.379**
−2.968**
0.169
−0.075
3.484**
3.454**
2.880**
1.126
−0.968
3.41
3.30
3.24
4.04
1.083
1.126
0.988
0.939
3.48
3.42
3.21
4.08
1.110
1.117
0.988
0.905
−0.898
−1.574
0.577
−0.662
Innovation sales
Innovation rate
0.502
0.633
0.427
0.398
0.392
0.549
0.427
0.436
3.820**
2.951**
Remarks: N: sample size; S.D.: Standard deviation; + p < 0.1; * p < 0.05.
**
p < 0.01.
(31%), which delivered a high level of innovation performance. It
seems that Chinese manufacturing firms gradually moved away
from wholesale reliance on imported technology.
Table 11 shows how firms that adopted a leading innovator
strategy differed from firms that adopted a technology importer
strategy in terms of their innovation objectives. Significant differences are observed in their marketing and new product objectives.
The leading innovators clearly attached greater importance to the
development of radically innovative products than did the technology importers. They also placed more emphasis on marketing
outcomes than the technology importers.
8. Firm characteristics and innovation performance
The relationship between firm characteristics and innovation
performance has already been examined through the univariate
t-tests described in the preceding sections. The multivariate tech-
nique of regression analysis is used to analyze the impact of firm
characteristics, together with firms’ innovation objectives, on innovation performance. The two models used are significant and the
results are shown in Table 12. The results show that while hightech firm status, firm age and firm size can explain innovation rate,
only high-tech firm status and firm size can explain innovation
sales. Type of ownership (SOE or not) is not a significant predictor
variable.
Whether or not a firm has high-tech status is the most important
predictor of its innovation performance. High-tech firms perform
better than general firms. The younger the firm, the better it performs in terms of innovation rate. Firm size affects both innovation
rate and innovation sales. The smaller the firm, the better it performs. This finding is consistent with our t-test results.
Almost none of the innovation objectives are related to innovation performance. “Reduce consumption of raw materials” has a
negative impact on innovation rate and “improve working condi-
Table 12
Regression analysis: predictors of innovation performance.
Dependent variable
Innovation rate
Innovation sales
Firm characteristics
High-tech firm status (1 = high-tech, 0 = general)
Firm type (1 = SOE, 0 = non-SOE)
Firm age
Firm size
0.178**
ns
−0.104*
−0.081**
0.416**
ns
ns
−0.077*
Innovation objectives
Develop radical innovative product
Introduce niche products or technology
Improve production process
Replace products being phased out
Maintain or increase market share
Exploit new domestic market
Exploit new international market
Improve product quality
Improve existing technology to reduce reliance on imported equipment/technology
Reduce consumption of raw material
Reduce consumption of energies
Improve working conditions
Reduce production cost
ns
ns
ns
ns
ns
ns
ns
ns
ns
−0.099*
ns
ns
ns
ns
ns
ns
ns
ns
ns
ns
ns
ns
ns
ns
−0.087*
ns
F
R
R2
8.696**
0.322
0.104
13.375**
0.474
0.224
Remarks: ns: not significant.
*
p < 0.05;
**
p < 0.01.
J.C. GUAN et al. / Research Policy 38 (2009) 802–812
tions” has a negative impact on innovation sales. Given that these
two objectives are related to incremental innovations, it is not surprising to find that firms need a longer period of time to turn out
really innovative products.
The R2 values of the two regression models are relatively
low. However, as the purpose of this analysis is to determine
whether firm characteristics and strategic orientations can explain
a significant variation in innovation performance rather than to
predict innovation performance, the low R2 values are not too
important here. A somewhat unexpected result is that “develop
radically innovative products” as an innovation objective does
not affect innovation performance. This indicates that there were
other factors at work which may have influenced innovation
performance. Although Chinese enterprises maintained a strategic focus on innovation during the transition period, they were
unable to achieve better innovation performance because of a
scarcity of funds for innovation, poor access to information, a
lack of technology and managerial experts, the inefficiency with
which resources were spent on R&D, and short-term R&D activities
(OECD, 2002).
9. Conclusions
This study investigates the innovation strategies of various firm
categories and the linkages between innovation strategy and performance, based on a survey of 1244 Chinese manufacturing firms
in Beijing during China’s period of economic transition. The results
show that the innovation activities of Chinese firms were still
confined to the domestic sphere and were mainly directed to quality improvements and cost reductions for existing products. The
existence of an R&D department was essential to the facilitation
of innovation activities as the innovation performance of firms
with R&D departments was better than that of firms without R&D
departments.
Through a classification of the surveyed firms into various
groups, this study reveals a diverse range of strategic profiles in
relation to innovation. Some findings were expected, such as that
high-tech firms performed much better than general firms because
they had support from the Chinese government, and that newly
established firms moved faster than firms with a longer history in
terms of their innovation activities. Nevertheless, some findings
were not expected, such as that smaller firms performed better
than bigger firms because the former were more flexible and the
latter were complacent, and that firms oriented to a high level of
innovation did not necessarily perform better than others.
At the same time, a trend for Chinese manufacturing firms to
move away from relying on imported technology and equipment
had already developed. Majority of the surveyed firms adopted the
leading innovator strategy and the innovation rates and innovation
sales of these firms were better than firms adopting other strategies. These firms had started to use their indigenous R&D efforts to
innovate for the coming market economy.
The major limitation of this paper is that a set of predictors to
explain innovation performance could not be identified. The most
important factor affecting innovation performance might be central administrative intervention. However, more solid evidence is
required in further studies to support this proposition.
Future research could investigate the formulation of technological innovation strategy and place more emphasis on the
relationship between innovation strategy and economic performance. It is also possible that the innovation strategies of Chinese
manufacturing firms vary from sector to sector and across time.
To reveal sector/time-specific characteristics, comparative evaluations of innovation strategies and their impact on organizational
performance across various sectors and in multiple timeframes may
produce findings of greater relevance to policymakers.
811
Acknowledgements
The work described in this paper was substantially supported
by the National Social Science Foundation of China (Project No.
08BJY031), the National Natural Science Foundation of China
(Project No. 70573009), Shanghai Leading Academic Discipline
Project (Project No. B210) and a grant from the City University of
Hong Kong (Project No. 7001433-630). The authors are grateful for
the valuable comments and suggestions received both from anonymous reviewers and from our Editor, which significantly improved
the paper.
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J.C. Guan is professor at the school of management of Fudan University in Shanghai,
China. His teaching and research areas include technological innovation management and scientometrics.
R.C.M. Yam is associate professor in the Department of Manufacturing Engineering and Engineering Management of the City University of Hong Kong. His current
research interests are in the areas of product innovation and technology management.
Esther P.Y. Tang is associate professor in the Department of Management and Marketing at the Hong Kong Polytechnic University. Her current research interest is in
the area of marketing and manufacturing interface.
Antonio, K.W. Lau is a former teaching staff of the Department of Manufacturing
Engineering and Engineering Management at the City University of Hong Kong.
His current research interests are in the areas of new product development and
innovation management.