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Product innovation in emerging market-based international joint ventures: An organizational ecology perspective

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Abstract

This study investigates product innovation in market-seeking international joint ventures (IJVs) in a large emerging market, and tests two sets of hypotheses: organizational orientation and environmental adaptation. Drawing on organizational ecology theory, we suggest that IJVs’ product innovation can be understood as a consequence of organizational orientation defined by IJV contract specifications and as a subsequent response to major contingencies of the local environment. Empirically, we analyzed a longitudinal dataset consisting of 3555 IJVs in China from 1999 to 2003, and found strong support for both sets of hypotheses. Product innovation in IJVs is positively associated with initial conditions such as balanced ownership structure, state partnership, and project size; IJVs are more innovative when they operate in an industry with a faster pace of innovation or a higher level of foreign direct investment legitimization, and where they are located in a region with greater agglomerated innovative activities.

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Notes

  1. In fact, research adopting an ecological lens has shown that firm-level variations do matter in shaping external environments (Baum & Mezias, 1992; Lubatkin et al., 2001). For example, Baum and Mezias (1992) have shown that firms’ location choice and pricing strategy have tremendous impact on the competitive environment surrounding these firms.

  2. It should be noted that our focus on these initial conditions does not mean that possible subsequent changes of these initial conditions are not important. Rather, we believe their subsequent changes may considerably affect an IJV's propensity to innovate. However, because such changes may occur for many reasons (Yan & Zeng, 1999), taking them into consideration will inevitably add substantial complexity to our conceptualization. Therefore, in order to obtain a preliminary understanding of the issue of interest, we have decided to limit our discussion and empirical test to the case of stable IJVs.

  3. Specifically, by the end of 2005, there were 260,417 IJVs in China (47.10% of the total number of foreign establishments) responsible for US$237.027 billion (37.36% of total actual FDI). As a comparison there were 235,124 foreign wholly owned subsidiaries (42.52% of total) contributing US$282.183 billion (44.47% of total) by the end of 2005.

  4. The National Bureau of Statistics of China has set up nationwide branches. In each county there is an office of the Statistics Bureau responsible for collecting, compiling, maintaining, and reporting various sources of data on a monthly basis. Correspondingly, there are formally designated personnel in business enterprises who are responsible for their own enterprises’ statistics. The local branch and the enterprises work closely to ensure that the statistics collected are reliable, and are consistent with the codes and definitions provided by the NSBC. Support for the use of the Census data as an internally consistent and accurate source of data for social science research can be found in recent research such as Tan and Peng (2003). The data have also been used by prior research such as Buckley et al. (2002).

  5. For the time scope of the present study, the exchange rate between the Chinese yuan and the US dollar was fixed at 8.23:1.

  6. This judgment has been confirmed by our descriptive statistics: while the mean of pace of industry innovation is 0.094 for the sample excluding these sectors, it is only 0.021 for the excluded sectors.

  7. Data in Laursen and Salter (2006: 138) are drawn from the UK innovation survey implemented in 2001, where product innovation is defined as “goods and services introduced to the market which are either new or significantly improved with respect to fundamental characteristics. The innovations should be based on the results of new technological developments, new combinations of existing technology or utilization of other knowledge by your firm.”

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Acknowledgements

We are grateful for the constructive guidance and insightful comments provided by the Departmental Editor, Professor Yadong Luo. We also thank the anonymous reviewers for their helpful suggestions. We acknowledge the financial support from the Natural Science Foundation of China (grant nos. 70472023 and 70772004) and from Simon Fraser University (Presidential Research Grant).

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Authors and Affiliations

  1. Guanghua School of Management, Peking University, Beijing, China

    Changhui Zhou

  2. Faculty of Business Administration, Simon Fraser University, Canada

    Jing Li

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  1. Changhui Zhou
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Correspondence to Changhui Zhou.

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Accepted by Yadong Luo, Departmental Editor, 28 November 2007. This paper has been with the authors for three revisions.

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Zhou, C., Li, J. Product innovation in emerging market-based international joint ventures: An organizational ecology perspective. J Int Bus Stud 39, 1114–1132 (2008). https://doi.org/10.1057/jibs.2008.51

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