Application for International Business Research and Travel Funding
ANTECEDENTS AND CONSEQUENCES OF INNOVATIVE
CAPABILITY IN THE CHINESE AUTOMOBILE INDUSTRY
Principal investigator: Zheng J. Zhao
Co-investigator: George M. Marakas (MIS sub-project)
Co-investigator: James P. Guthrie (HR sub-project)
I. Summary of Research Objectives
In recent years, both business practitioners and scholars in the management field have realized that a
firm’s sustainable competitive advantage comes from its ability to recombine its employees’ knowledge
in order to foster innovation and new products or services. Research in strategy, HRM, MIS, and other
business disciplines have examined this issue, yet from their own parochial perspectives. Research to
date has rarely drawn upon multiple disciplines to attain a holistic view of all the factors affecting firms’
innovative capabilities.
The main purpose of this research is to study the effects of various resource and management factors
(e.g., strategy, HRM, MIS, and etc.) on a firm’s innovative capability and outcomes. We use a
longitudinal and multi-disciplinary survey approach within the context of the Chinese auto industry. As
a first step, we will establish a comprehensive survey instrument designed to assess the resources and
managerial factors that we believe have the potential to contribute to a firm’s innovative capability. We
will then conduct the survey in the automotive industry in China. These data will then be used to address
a series of research questions, forming the basis for multiple, substantive research outcomes.
This project was initiated by the principle investigator’s collaboration with the Society of Automotive
Engineers in China (SAE-China). SAE-China will assist the principle investigator to promote, pilot test,
and administer the survey beginning in June 2007. In return, the principle investigator is expected to
present key findings to SAE-China’s annual conference scheduled in September 2007.
The collaboration platform between SAE-China and the principle investigator provides a wonderful
opportunity to investigate multi-disciplinary determinants of innovative capabilities in the most dynamic
market in the world. This opportunity calls for scholars from different disciplines to work together in
designing the survey instrument, analyzing data, and presenting results to multiple audiences. In the
present case, the research team consists of specialists in the information systems, HRM and strategic
management disciplines.
Our study will address such questions as: (1) What role does innovation strategy play in creating
innovative capability, (2) What role does HRM, particularly the use of high performance work systems,
play in creating innovative capability? (3) What role does MIS play in creating innovative capability?
(4) Do the above factors act as complements or substitutes in the creation of innovativeness? (5) Do
Chinese indigenous firms differ from MNCs and MNC joint ventures with regard to innovative strategy,
MIS and HRM? (6) Do these differences, in turn, influence differences in innovative capability across
these firms? (7) Finally, what impact does innovative capability have on firms’ performance?
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II. Significance to International Business
In addition to the general academic value of this research in the area of innovation and
knowledge creation/management, this research also carries significance to international business
due to its unique empirical setting. First, China is clearly one of the most important emerging
markets in the global economy. Whereas China is currently known for having a comparative
advantage in terms of low-cost production capabilities, developing indigenous innovative
capabilities has become China’s foremost national objective. But, how will China accomplish
this lofty goal? What organizational factors or resources will help create this capability? These
are the questions not only pondered by Chinese government and business leaders, but are also
relevant to all countries participating in the global economy – especially those in emerging
markets.
Second, the Chinese auto industry is a very interesting empirical setting for several reasons. On
the practical side, this industry is quite global. The U.S. and many other western countries have
made large investments in China. Examining the innovative capability and the relevant
contributing factors in this industry will be beneficial not only to indigenous firms but also to
MNCs and joint ventures. On the academic side, this industry provides an ideal setting for
research on innovation, resources and capabilities for two reasons. First, there is a high level of
variation in firms’ ownership types, managerial styles, resources, capacities, HR practices, MIS
usages, and innovation outcomes. This variation will allow for meaningful inter-firm
comparisons. Second, firms in this industry are in the early stage of innovative capability
development. This provides an opportunity to see the full life cycle of innovative capability
development.
This study, with samples ranging from state-owned, private, wholly-owned foreign firms, and
joint ventures with various levels of foreign shares, has the potential to compare innovative
capabilities, practices, and outcomes among different types of firms. It may also shed light on
whether entry mode and equity share play a role in MNCs’ innovative capabilities, practices, and
outcomes in this industry.
Assuming continued cooperation from SAE-China and participating firms, our plan calls for data
collection across several years. This will allow for an examination of trends in innovative
capabilities, practices, and outcomes of various types of firms. This will also allow us to better
understand the causal relationships between a firm’s managerial practices (such as strategy,
HRM, MIS) and its innovative capability, as well as the causal relationship between innovative
capability and organizational outcomes.
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III. Research Plan, Supporting Data, and Proposed Time Schedule
Background
Business organizations have been repeatedly warned that future competitive success hinges on
their ability to exhibit ever-increasing levels of innovation and creativity. A number of years ago,
Tom Peters (1990) authored an article entitled “Get Innovative or Get Dead”. A few years later,
the title of a Forbes magazine article (Young, 1994) suggested that firms must “Innovate or Die”.
Although somewhat over-stated, these sentiments forcefully capture the importance of
innovation for business organizations. In more recent years the interest and emphasis on
innovative capability has accelerated. Much of the emphasis on innovation has been subsumed
under broader discussions of corporate entrepreneurship or intrapreneurship (i.e., innovation
and entrepreneurship within established firms). Technological diffusion, shortened product life
cycles and globalization have imposed an entrepreneurial imperative across a wide swath of
industries. Innovation and new venturing are the sine qua non of entrepreneurship -- hallmarks of
entrepreneurial behavior within business organizations (Zahra, Jennings & Kuratko, 1999).
The promotion of innovation and entrepreneurship has also been a central focus of policy
discussions among government officials, including the Chinese government.
Thus, knowledge creation and innovation are considered central to comparative advantage and
organizational success. Against this backdrop, our basic research question is:
What
organizational factors help foster these outcomes? Our theoretical framework for exploring this
question is the resource-based view (RBV). Drawing on multiple theoretical perspectives, the
RBV argues that a firm represents a pool of resources and capabilities which, in turn, can be an
important source of competitive advantage (e.g., Barney, 1991; Grant, 1996; Wernerfelt, 1984).
The potential for competitive advantage derives form a firm’s ability to exploit the unique
features of its collection of resources and capabilities. In this study we intend to examine and
identify organizational resources that help create competitive advantage through their influence
on innovative capability. Among other organizational factors, we believe that strategy, MIS and
HRM, in the form of high performance work systems, may play important roles in fostering
organizational innovation.
Strategy. One way to describe innovation strategies is from the perspective of a two-by-two
matrix, with “self-reliant vs. collaborative” strategies on one axis and “original innovation vs.
imitation” strategies on the other axis. This implies that a firm may adopt the any of the the
following four strategies: “self-reliant original innovation”, “self-reliant imitation”,
“collaborative original innovation”, and “collaborative imitation”. There are pros and cons for
adopting each of these innovative strategies. Few studies in the strategy literature have
systematically examined the effects of different innovative strategies on the innovation outcome.
In addition, more generic competitive strategies such as differentiation and cost leadership
(Porter, 1980) may also play a role in a firm’s intent, commitment, practice, capability, and
innovation outcomes.
HRM. Strategic human resource management (SHRM) has emerged as a major paradigm in the
HR field (Dyer & Reeves, 1995). A common theme in this developing literature is discussion
and research on high performance work systems (HPWS), or HR practices equipping employees
with skills, information, motivation and latitude yielding a work force that is a source of
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competitive advantage. A number of empirical studies over the last decade have supported the
belief that human resource management systems can, in fact, impact organizational success (e.g.,
Arthur, 1994; Datta, Guthrie & Wright, 2005; Delery and Doty, 1996; Guthrie, 2001; Huselid,
1995). We believe that high performance work systems help firms succeed, in part, due to their
ability to stimulate knowledge creation and innovation. A high performance work system
engenders broad perspectives and experience sets, aligned interests, information sharing and
participatory mechanisms – all of which enhance prospects for spontaneity, innovation and
alternative strategy-generation throughout the organization (Wright & Snell, 1999). By
developing broad repertoires of skill and behavior, many high performance work system
elements promote employee innovative capability and intrapreneurship.
MIS. MIS is another important factor that facilitates an organization’s knowledge sharing and
knowledge creation processes. Studies have found that MIS contributes significantly to all levels
of organizational learning and technical distinctive competencies (Real, Leal, & Roldan, 2006).
The adoption of data warehouse and data mining contributes to new product quality and shorter
time-to-market (Li & Zhao, 2006). Information systems also improve organizational capital
(Snell & Youndt, 1995).
Potential Contributions
As noted, because of its importance to sustainable organizational competitiveness, increased
understanding of the organizational determinants of innovative capability is an important
undertaking. This is particularly essential in an economy attempting to transition from a
comparative advantage based on low-cost, labor-intensive work to one focused on knowledge
creation and innovation. The Chinese auto industry is an example of an industry attempting to
make this transition. From an academic perspective, we hope to increase understanding of the
mechanisms and processes that help firms’ innovate. Our practitioner sponsors and partners
have this same interest.
Our study will contribute to the innovation and international business literature in the following ways.
First, this study will answer the following research question in a fine-grained way by administering a
multi-respondent and multi-job function survey. The main research questions are: (1) What role does
innovation strategy play in creating innovative capability, (2) What role does HRM, particularly the use
of high performance work systems, play in creating innovative capability? (3) What role does MIS play
in creating innovative capability? (4) Do the above factors act as complements or substitutes in the
creation of innovativeness? (5) Do Chinese indigenous firms differ from MNCs and MNC joint ventures
with regard to innovative strategy, MIS and HRM? (6) Do these differences, in turn, influence
differences in innovative capability? (7) What impact does innovative capability have on firms’
performance?
Second, with a multi-disciplinary design, this study has the potential to examine the effects of various
managerial factors such as strategy, HRM, and MIS on a firms’ innovative capabilities and outcomes. .
This will allow for an identification of the relative contribution of each factor as well as an examination
of the relationship among these factors as determinants of innovativeness.
Third, this study, with samples ranging from state-owned, private, wholly-owned foreign firms,
and joint ventures with various levels of foreign shares, will allow us to compare innovative
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capabilities, practices, and outcomes among different types of firms. It may also shed light on
whether entry mode and equity share may play a role in MNCs’ innovative capabilities, practices,
and outcomes in this industry.
Finally, we plan on collecting data longitudinally over several years. This allows for an
examination of trends in innovative capabilities, practices, and outcomes within various types of
firms. Moreover, this longitudinal design will help our understanding of the causal relationships
between a firm’s managerial practices (such as strategy, HRM, MIS) and its innovative
capability, as well as the causal relationship between innovative capability and outcomes.
Methods
We will conduct this project using a multi-respondent and multi-job function mail survey
approach. The sample of this project includes about 400 sizable (with total asset above100
million USDs) automotive assemblers and suppliers that operate in China. With the backing of
SAE_China, we hope to achieve a response rate of around 40%. For each participating firm, data
will be collected from one senior executive, one R&D manager, one HR manager, one MIS
manager, and 2 to 5 engineers who have participated in R&D activities. Survey instruments are
designed differently for each type of respondent. However, there will be some overlap in survey
questions as a check on measurement reliability.
Anticipated Project Schedule
This research contains two major stages: (1) a theory-guided field study consisting of semistructured interviews and field observations and (2) a survey study using a mail survey approach.
The first stage has been completed as of Jan. 2007. Field interviews are recorded and will be
transcribed and coded. Now the main focus is on Stage Two, i.e. the survey study. Here is the
tentative plan for the survey study.
1. Literature review (completed)
2. Discuss the general project direction and plan among all parties involved in the research
(completed)
3. Secure funding (in process)
4. Obtain local academic and industry support in China (completed)
5. Questionnaire design
o Preliminary draft in Chinese (completed)
o Evaluation of the draft questionnaire by experts in the Chinese auto industry
(completed)
o First revision of the Chinese questionnaire (v. C1) –to be completed by 3-1-07
o English translation of C1 (v. E1)– to be completed by 3-1-07
 Pilot test
o Packet preparation – by 3-15-07
o Administration – 3-20-07
o Evaluation of results – by 4-15-07
o Second version of the Chinese questionnaire (v. C2) – by 5-1-07
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
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o English translation of C2 (v. E2) and back translation – by 5-15-07
Survey administration and collection
o Printing and packaging – by 5-30-07
o Promotion and pre-survey contact – by 5-30-07
o Administration
 Mailing of survey questionnaires – by 6-30-07
 Follow-up reminders – by 7-15-07
o Collection and database development – by 8-15-07
Data processing – by 9-15-07
o Data quality examination
o Construct validity, reliability check
o Index creation
o Regression and structural equation modeling
Result presentation and publication
o SAE-china annual conference – Sept.-07
o Working papers
 IMVP conference – due May-08
 AOM conference – due Jan-08
o Targeted journals
 AMJ
 SMJ
 JOM
In conclusion, we believe this project addresses interesting and important research questions
using appropriate methodologies in a dynamic industry and national context. As such, we
believe it has the potential to generate a number of high-profile research outcomes.
REFERENCES
Arthur J. 1994. Effects of human resource systems on manufacturing performance and turnover.
Academy of Management Journal 37: 670-687.
Barney JB. 1991. Firm resources and sustained competitive advantage. Journal of Management
17: 99-120.
Datta, D.K., Guthrie, J.P. & Wright, P.M. 2005. HRM and labor productivity: Does industry
matter? Academy of Management Journal, 48(1): 135-145.
Delery JE & Doty DH. 1996. Theoretical frameworks in strategic human resource management:
Universalistic, contingency and configurational perspectives. Academy of Management
Journal 39: 802-835.
Dyer L & Reeves T. 1995. Human resource strategies and firm performance: What do we know
and where do we need to go? The International Journal of Human Resource Management 6:
656-670.
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Guthrie JP. 2001. High involvement work practices, turnover and productivity: Evidence from
New Zealand. Academy of Management Journal 44: 180-190.
Huselid MA. 1995. The impact of human resource management practices on turnover,
productivity, and corporate financial performance. Academy of Management Journal 38:
635-672.
Li, L., & Zhao, X. 2006. Enhancing competitive edge through knowledge management in
implementing ERP systems. Systems Research and Behavioral Science, 23(2): 129.
Peters, T. Get Innovative or Get Dead. California Business Review. Fall 1990.
Porter, M. E. 1980. Competitive Strategy: Techniques for Analyzing Industries and Competitors
New York: The Free Press
Real, J. C., Leal, A., & Roldan, J. L. 2006. Information technology as a determinant of
organizational learning and technological distinctive competencies. Industrial Marketing
Management, 35(4): 505.
Snell, S. A., & Youndt, M. A. 1995. Human resource management and firm performance:
Testing a contingency model of executive controls. Journal of Management, 21(4): 711.
Wright, P.M. & Snell, S.A. 1999. Toward a unifying framework for exploring fit and flexibility
in strategic human resource management. Academy of Management Review, 23: 756-772.
Young, J. 1994. Innovate or die. Forbes, 153: 1067.
Zahra, S.A., Jennings, D.F. & Kuratko, D.F. 1999. The antecedents and consequences of firmlevel entrepreneurship: The state of the field. Entrepreneurship: Theory & Practice, 45-63.
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Curriculum Vitae
Please refer to the attachments for the CVs of the principal and co-investigators.
Other Sources of Funding
International Motor Vehicle Program Research Fund

The principal investigator has not applied for this fund yet, since the fund will not be
available for application until June 2007. Due to the decline in the sources of this fund, it is
highly uncertain whether funding will be available.
Budget
DESCRIPTION
round trip travel from Lawrence, KS to Beijing,
China by the principle and co-investigators
local travel in China
living expenses
survey cost
RA at KU
RA at Tsinghua
data purchase
grand total
UNIT
3
UNIT
EXPENSE
$1,600.00
TOTAL
EXPENSE
$4,800.00
3
50
400
200
100
1
$1,000.00
$150.00
$10.00
$10.00
$10.00
$3,000.00
$3,000.00
$7,500.00
$4,000.00
$2,000.00
$1,000.00
$3,000.00
$25,300.00
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