Empirical Analysis of Innovation Policy in Developing Economies: How ICT Promotes Innovation

Posted: 1 Apr 2015

Date Written: March 31, 2015

Abstract

East Asian economies have been developing rapidly. The reason is that firms have been successfully achieving product and process innovation which are made possible by introducing advanced technologies and know-how from MNCs (Multi-national corporations). To enhance innovation, local firms in developing economies have to nurture own technology, innovation capability through collaboration with outside organizations such as MNCs, universities, public organizations are indispensable (Cohen and Levinthal, 1990; Zahra and George, 2002). The study analyzes how ICT use plays a role in this innovation process. In so doing, abilities to achieve innovation are categorized into two notions such as absorptive and innovation capacity. Moreover the study examines the causality among these two capacities and ICT use. Absorptive capacity is constructed by the following questions in the questionnaire.

Q1. Your establishment has capability to identify and acquire externally generated knowledge that is crucial to your operation. Q2. Your establishment has capability, or routines and processes, to analyze process, interpret, and understand externally generated knowledge obtained from external sources. Q3. Your establishment has capability to develop and refine the routines that facilitate combining its existing internally-available knowledge and the externally generated knowledge. Q4. Your establishment has capability to incorporate the externally generated knowledge into your operation, new products, processes or new organizational forms. Innovation capability is constructed by QC (Quality control) and cross-functional team, while ICT use consists of B2B, B2C, EDI, SCM, ERP, CAD/CAM, groupware, SNS etc. These latent variables are constructed by factor analysis based on the related questions.

Methodology: This study is based on mail surveys to firms in the Batangas areas in the Philippines, in the Jabodetbek area in Indonesia, in Greater Bangkok in Thailand, and in Hanoi and Ho Chi Minh City in Vietnam. The surveys were conducted from 2013 to 2014. This study employs SEM (Sequential equation modeling) which can examine the relationships between various variables which are related to each other. This analysis can be used even if they are endogenous and usual least squares analysis cannot be applied. External linkages such as MNCs, local firms, public organizations, and universities, absorptive capacity, innovation capability, ICT use and innovation are used as latent variables.

Outline of results: The findings of the analysis related to product innovation are as follows: (i) local firms, public organizations, and universities enhance absorptive capacity, while MNCs do not enhance it; (ii) MNCs enhance ICT use; (iii) local firms enhance innovation capability, while local firms do not enhance ICT use; (iv) absorptive capacity enhances innovation capability; (v) innovation capability improves ICT use; and (vi) innovation capability and ICT use promote product innovation.

From these results, the following conclusions are obtained: (i) absorptive capacity is enhanced by local firms, public organizations, and universities; (ii) absorptive capacity enhances innovation capability; (iii) innovation capability enhances ICT use; and (iv) innovation capability and ICT use promote product innovation. In addition; (v) MNCs enhance ICT use; and (vi) innovation capability and ICT use promote product innovation. Thus ICT use is promoted by innovation capability and MNCs, and ICT use together with innovation capability enhance innovation. These conclusions propose concrete national innovation policy in developing economies such that a policy has to target to develop a channel between public organizations and universities and locals. This is a construction of open innovation system in the regions.

Keywords: ICT use, absorptive capability, innovation capability, SEM, factor analysis

Suggested Citation

Tsuji, Masatsugu, Empirical Analysis of Innovation Policy in Developing Economies: How ICT Promotes Innovation (March 31, 2015). Available at SSRN: https://ssrn.com/abstract=2588004

Masatsugu Tsuji (Contact Author)

Kobe International University ( email )

9-1-6 Koyocho-naka, Higashinada-ku
Kobe, Hyogo 658-0032
Japan
+81-78-845-3418 (Phone)
+81-78-845-3418 (Fax)

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