An Empirical Investigation On The Sources Of Firms' Innovation Capability

During the past 20 years, the advent of knowledge economy has been received great attention in the world economic development. Knowledge economy, which based itself on the knowledge resources for development, becomes a symbol for human beings entry into a new economic era. From the microeconomic point of view, firms are beginning to adopt various practices of knowledge management to increase their competitiveness. For instance, the Community of Practice in the business world has played an important role in rapidly solving problems, diffusing best practices and developing special skills. It is undeniable that the knowledge management within firms will always have effects of reducing costs and increasing efficiency, but the growth opportunity often comes from outside. In the evolution of knowledge management, more and more firms focus their attention from inside to outside. Knowledge acquired from customers, suppliers and competitors have greatly contributed to the firms' innovation capability and innovative outputs, which in turn increase the knowledge base of firms and paved the way for further innovation. It is such interaction between knowledge and innovation that theorists and practitioners are really interested in.In theory, Kogut and Zander (1993) issued the article titled " Knowledge of the Firm and the Evolutionary Theory of Multinational Corporation" in Journal of International Business Studies. The critical distinction made by Kogut and Zander is that if the value of the firm is defined as its store of knowledge, and expansion of the firm's boundaries is related to the transfer of knowledge, then inescapable uncertainties about the value of this knowledge are enough to explain internal transmission, and therefore the existence of firms - opportunism is not required. Therefore, they find the critical role that opportunistic behavior by transactional partners in markets plays in internalization models is not necessary but leads to an overdetermined model. Compared with Coase(1937) and Williamson's(1975) Transaction Cost Theory(TCE), it appears that Kogut and Zander's research has been cited in the majority of subsequent work considering the role of tacit knowledge and knowledge sharing in the organization. Under such practical and theoretical background, this thesis investigates the relationship between knowledge sharing and sources of innovation capability of firms.The competitive advantage of firms and its sustainability is a focal point both in theory and practice. The general explaination is that innovation is the major source of competitive advantage. The thesis further investigates the sources of innovation capability, which forms thebasis of innovation outputs. Such consideration becomes the main purpose of this study. Using data sets from 115 companies operated in mainland China, the thesis develops a theoretical framework and investigates the relevant hypotheses by using Structural Equation Modeling (SEM). The managerial implications are inferred from the empirical results.According to the empirical results, there exists a significant positive relationship between knowledge sharing behavior and innovation capability, while the relationship between knowledge acquired from customers, suppliers and innovation capability is insignificant. Moreover, the knowledge acquired from competitors have a significant negative effects on innovation capability. The theoretical implications of these results are straightforward, that is, the Resource-based Theory of the Firm (RBV) is more convincing in explaining the source of innovation capability than Strategic Management Theory (SMT). Of course, this conclusion can not be extended without restriction to all firms due to the characteristics of the sampling firms.The results show that the tacitness and dispersion characteristics of knowledge have a significant negative effect on knowledge sharing behaviors, while knowledge sharing has a significant positive effect on innovation capability. Apart from the direct effects of knowledge characteristics on innovation capability, knowledge sharing behaviors have an important intermediate effect on innovation capability. This implies that firms can facilitate knowledge sharing through knowledge management tools. The traditional system such as job rotation and employee suggestion systems can contribute to knowledge sharing behaviors. Firms can also facilitate information flow and knowledge sharing by investing information technological infrastructure, which makes employees exchange ideas and knowledge more freely via e-mail, internet, databases, magazine and virtual community.The empirical results of the study show that there exists a significant positive relationship between absorptive capacity and innovation capability. Firms' absorptive capacity is a prerequisite for firms acquiring and leveraging technological knowledge from outside. Two factors influencing a firm's absorptive capacity are prior knowledge accumulated by the firm and the research and development (R&D) investments made by the firm. R&D can contribute to the creation of new knowledge and accumulation of technological capability. The R&D investments by the firm can contribute to the generation of technological knowledge, which in turn can contribute to its absorptive capacity.It is no doubt that there are only few firms which are equipped with autonomous innovation capability. Most firms are inexperienced in undertaking technological development because of the inadequacy of prior knowledge. Most technological knowledge are acquired by using such informal mechanisms as "learning by doing". The constraints on such resources ascapital and labor are also making it difficult for firms investing in technology development. Therefore, it is feasible for most Chinese firms to innovate by imitating, absorbing and improving the extent technology.Although it shows in the empirical results that knowledge acquired from customers has an insignificant effect on innovation capability, this cannot be seen as conclusive. Most firms have established the various customer relationship management systems, but it is still doubtful about the extent to which these systems are utilized (Gorden et al 1993). The findings suggest that many companies, both large and small, are not undertaking the necessary efforts to acquire and utilize customer knowledge. Instead, as a respondent in the survey has noted: " (Our) company has established the information platform such as CALLCENTER> CRM. The necessary tools are all in place, but lip service is being paid to the concept of being market oriented. " In other words, if firms can increase the efficiency of using knowledge management tools, the outcome would be different.JEL classification: C39 D21 M10...