The Mediating Role of Innovation Strategy on the Influence of

Industry Structure and National Context on Firm Performance

Brent B. AllredK. Scott Swan

The College of William & Mary

March 27, 2004

5th ANNUAL INTERNATIONAL BUSINESS RESEARCH FORUM Temple University

Philadelphia, Pennsylvania

Research Questions

• How does industry structure and national context influence firm performance?

• Is this relationship mediated by innovation strategy?

Proposed Model

Industry Structure- Dynamism- Concentration- Technological Change

National Context- Level of Development

- Economic Size

- Patent Protection

Firm Performance

InnovationInnovationStrategyStrategy

Theoretical Background

• Industrial Organization Economics (Bain, 1956, Mason, 1939).

Structure Conduct Performance

Theoretical Background

• International Trade Theories (Ricardo, 1817; Heckscher, 1919; Ohlin, 1933; Vernon, 1966)

• Ownership-Location Framework (Dunning, 1977)

• The Competitive Advantage of Nations (Porter, 1990)

Hypothesis 1 (Industry Dynamism)

Hypothesis 1A: There is a positive relationship between industry dynamism and firm performance.

Hypothesis 1B: Firm innovation strategy mediates the relationship between industry dynamism and firm performance.

Hypothesis 2 (Industry Concentration)

Hypothesis 2A: There is a positive relationship between industry concentration and firm performance.

Hypothesis 2B: Firm innovation strategy mediates the relationship between industry concentration and firm performance.

Hypothesis 3 (Industry Technological Change)

Hypothesis 3A: There is a positive relationship between industry technological change and firm performance.

Hypothesis 1B: Firm innovation strategy mediates the relationship between industry technological change and firm performance.

Hypothesis 4(Level of Development

Hypothesis 4A: There is a positive relationship between a country’s level of development and firm performance.

Hypothesis 4B: Firm innovation strategy mediates the relationship between a country’s level of development and firm performance.

Hypothesis 5 (Economic Size)

Hypothesis 5A: There is a positive relationship between a country’s economic size and domestic firm performance.

Hypothesis 5B: Firm innovation strategy mediates the relationship between a country’s economic size and firm performance.

Hypothesis 6(Intellectual Property Protection)

Hypothesis 6A: There is a positive relationship between a country’s intellectual property protection and domestic firm performance.

Hypothesis 6B: Firm innovation strategy mediates the relationship between a country’s intellectual property protection and firm performance.

Methodology

Sample - 730 companies drawn from 10 manufacturing industries in 30 countries.

Archival Data was drawn from the Datastream/Worldscope database and other sources of national contextual data.

Hierarchical regression was used for the test of the mediation model following Baron & Kenny (1986).

Measures

Firm Performance - Stock Return

Innovation Strategy - R&D Intensity

Industry Structure: Dynamism, Concentration, Technological

National Context: Level of Development, Economic Size, Patent Protection

Results

R&D Intensity fully mediates the relationship between industry dynamism and technological change and firm performance.

R&D Intensity partially mediates the relationship between a country’s level of development and intellectual property protection and firm performance.

Conclusions

•Industry structure and national context were generally found to influence firm performance.

•These relationships are generally mediated (fully or partial) by innovation strategy.

• Both industry structure and national context should be taken into consideration with research regarding firm innovation and performance.

Role of IT on Firm Innovation and Performance

• Coordination

• Collaboration

• Competition