Antecedents and outcomes of supplier innovativeness in international customer-supplier relationships: the role of knowledge distance.

VerfasserJean, Ruey-Jer Bryan

Abstract The increasing competitive pressures and speed of R&D and product innovation is prompting many multinational enterprise customers to outsource their core activities to suppliers. Despite organizational challenges due to cultural and physical separation from their partners, these are now charged with supplier-driven innovation. This study looks at key drivers of supplier innovativeness, examines the role of cross-national differences in shaping supplier innovativeness and examines the impact of this dimension on relationship performance in international customer--supplier relationships. Our findings from a large-scale survey of Taiwanese electronics suppliers provide evidence of the contribution of antecedents such as customer orientation, customer control and technological uncertainty to the enhancement of supplier innovativeness. Innovativeness contributes to increased customer dependence and improves relationship performance. Differences in knowledge bases stemming from different institutions are also tested in this study; we find that knowledge distance may be detrimental to the innovativeness-performance link in international exchange relationships.

Keywords Supplier innovativeness * Dependence * Customer orientation * Knowledge distance ? Relationship performance

1 Introduction

Innovation outsourcing has become a megatrend for many firms in various industries (Quinn 2000). Globalization is forcing companies, and particularly multinational enterprises (MNEs), to internationalize their knowledge-intensive corporate functions, including R&D, and simultaneously open up their innovation processes to collaborative external partnerships with suppliers, customers, and contract manufacturers. For example, Hewlett-Packard has required the assistance of supply firms with the development of new products ranging from printers to IT services, and has shifted its R&D centers to emerging markets like China. This trend towards innovation outsourcing is driving suppliers in emerging or developing markets to be more actively involved with MNE customers in the global innovation network. However, this shift towards supplier-driven innovation also faces many challenges. This is particularly true for global markets, where customer-supplier relationships span geographical, political, and cultural borders. Institutional distance results in knowledge gaps between exchange parties and affects knowledge acquisition and integration in international exchange relationships, which in turn may influence innovation generation and its performance outcomes. In addition, supplying firms from emerging markets usually lack sufficient absorptive capacity, which hampers their development toward cutting-edge and radical innovation.

While intensified globalization has resulted in firms relying heavily on external innovative suppliers, relatively little research has explored innovation activities in the international supply chain (customer-supplier) context (Roy et al. 2004). Roy et al. (2004) note that there is a "dearth of research" on innovation generation in buyer-seller relationships. While previous studies identify some key drivers of organizational innovation, such as organizational culture, structure and environments, some relationships are still empirically unsubstantiated. Although prior work examines institutional aspects of knowledge differences between home and host countries and their effects on firms' foreign direct investments (Guler and Guillen 2010) or subsidiary innovation (Hilmola et al. 2005; Kumaraswamy et al. 2012), no empirical study in the literature has explored the impact of knowledge differences between exchange parties on innovation outcomes in the context of cross-border exchange relationships. The difference in institutional environments in general, and knowledge distance in particular, may play a crucial role in shaping emerging market firms' strategies and capabilities in dealing with international partners (Sultan 2010). For example, a poorly developed institutional support infrastructure with a lack of strong intellectual property protection (IPR) in China provides a weak base for local firms wishing to nurture knowledge resources gained from international alliance partners (Li et al. 2012). In addition, findings relating to the performance implications of firm innovativeness vary substantially across studies. For instance, while the predominant view is that innovativeness is positively related to performance, some research has reported non-significant or even negative effects for this association (Rubera and Kirca 2011). Finally, most prior work focuses on examining Anns' innovative behaviors in the context of developed markets and original equipment manufacturer (OEM) buyers, while theoretical discussions and empirical tests related to innovation by supplying firms in the context of developing markets have been limited (Li et al. 2010).

The primary objective of this study is to overcome these shortcomings by developing and testing a model that examines antecedents and performance outcomes of supplier innovativeness in international customer-supplier relationships in an emerging market. Specifically, the study addresses the following research questions: (1) What are the key drivers of supplier innovativeness in emerging market customer-supplier relationships? Specifically, what are the organizational (supplier customer orientation), interorganizational (customer control), and environmental (technological dynamism) factors impacting on suppliers' innovativeness in international exchange relationships? (2) How and to what extent does emerging market supplier innovativeness affect customer dependence and relationship performance in international customer--supplier relationships? (3) How and to what extent does knowledge distance shape the performance outcomes of supplier innovativeness in an emerging market?

This study contributes to existing knowledge in three ways. First, while prior studies focus on the innovation activities of MNEs and their subsidiaries in the global market, this study investigates the innovation generation by emerging market suppliers in international customer-supplier relationships. In combining theoretically grounded antecedents, mediation and moderating relationships with performance outcomes (see e.g., Bello et al. 2003; Sinkovics et al. 2010), this study responds to the call for more empirical research on innovation in the context of international supply chains (Roy et al. 2004).

Second, drawing on institutional aspects of the cross-national distance (Berry et al. 2010) and national innovation system literature, this study examines the impact of knowledge distance (i.e., the difference in knowledge stocks between exchange parties' countries of origin) on firms' innovation outcomes. According to this stream of research, innovative capabilities depend on the density and quality of relationships among firms and support institutions. Prior research shows that national culture (Hofstede 1984) plays a critically important role in shaping firms' innovation. However, empirical evidence, drawing mostly on Hofstede's national culture dimension, provides contradictory and mixed results on the link between cross-cultural distance and innovation (Tellis et al. 2003, 2009a, b). For example, Nakata and Sivakumar (1996) propose that masculinity has different effects on product innovation in different innovation processes. Further, the empirical study by Tellis et al. (2009a) reveals no significant relationship between the masculinity dimension and firm innovation. To resolve the paradox and contribute to this stream of research, we follow recent institutional theorizing in the field of international business (Berry et al. 2010) and investigate the associations between the differences in the configuration of institutions that foster the outcomes of innovativeness. We concur with Sinkovics et al. (2010) and are interested in a deeper understanding of the sources of potential similarities/differences. We thus argue that knowledge distance may be a distance variable that is particularly relevant to examining firm innovation behavior in cross-border exchange relationships, particularly in emerging markets. A weak and insufficient institutional environment exhibiting a lack of sufficient IPR protection may incur high coordination and transaction costs in international exchange relationships and thus inhibit knowledge transfer and exchange. While prior work applies this notion to innovation generation in the MNE-subsidiary context (Hilmola et al. 2005; Luo et al. 2011), no significant attention has been paid to the influence of institution-based knowledge differences between exchange partners from different countries on innovation generation within global supply chain relationships. The central contribution of this study is to address this gap in the literature by extending the role of institutional environment on innovation from the MNE-subsidiary context to global supply chains. This is consistent with the emerging stream of institutional theory in international business research, which highlights the role of institutional environments in shaping strategies, resources and capability development for foreign entrants or local firms in emerging markets (Luo et al. 2011; Meyer et al. 2011).

The empirical setting of this paper includes cross-border customer-supplier relationships between Taiwanese contract manufacturers (suppliers) and their international OEM customers in the electronics industry. International OEM customer-supplier relationships in the Taiwanese electronics industry are an excellent setting for this study for the following reasons: (a) Taiwanese suppliers are more dependent on international OEM customers, and exhibit significant power asymmetry in exchange relationships (Chang and Gotcher 2007; Jean et al. 2010; Kang et al. 2009). (b) Many Taiwanese suppliers play active...

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