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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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.
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