Antecedents of Dynamic Capabilities and Innovation Outcomes: The Roles of Foreign Competition, Leadership and Hierarchy

Abstract

One of the persistent gaps between FDI spill overs and firm competitive advantage literature is a unified analysis of the role that various factors play in the local firms’ ability to maintain or enhance performance in their competitive environment. This study examines foreign competition, leadership, and hierarchy as three antecedents of dynamic capabilities that that drive innovation outcomes in local firms. Employing data on 1076 firms from 12 countries including 10 Central and Eastern European economies, India, and Germany, we find that new product and service introductions by firms in these countries is driven by competition from MNEs. Firms with a higher share of top and middle managers who previously worked in MNEs or were born abroad have a higher propensity to introduce new products and services, as well as firms with CEOs with more industry experience and firms with more levels of hierarchy between typical production employee and national headquarter top manager. These findings extend the managerial spill over literature by showing that managers born abroad can serve as channels of managerial spill overs. We also augment the dynamic managerial capabilities theory by expounding upon the roles of antecedents including leadership and hierarchy and how they affect innovation outcomes.

Keywords: Cross-border connectivity, Organizational capabilities, Competitive strategy

JEL Classification: F16, F22, F23, F61, O31, O32