An Innovation Capability Development Process for Firms in Developing Countries: A Theoretical Conceptual Model.

• Author: Tesfaye, Gezahegn
• Position: Report - Abstract

INTRODUCTION

The global competitiveness of any organization depends upon its success in creating innovation (Zawislak, Alves, Tello-Gamarra, Barbieux, & Reichert, 2012). For firms to achieve innovation and overcome the global antagonism, they have to possess innovation capability (Lawson & Samson, 2001; Choudhury, 2010; Silvestre & Neto, 2014). Romijn and Albaladejo (2002) and Zawislak et al. (2012) attested that only those enterprises with strong innovation capabilities can make valuable contributions to their country's competitiveness. Many research works (such as OECD, 2005; Mojtahedzadeh & Chettiar, 2011; Sobanke, Adegbite, Mori, & Egbetokun, 2013; Doroodian, Rahman, Kamarulzaman, & Muhamad, 2014) have determined that firms of developing countries (FDC) have low innovation capabilities. The authors posited that for FDC a proper ICD process remains a major challenge.

Gamal, Salah, and Elrayyes (2011) and Kaplan (n.d.) have discussed that R&D, patent, publication and citation data are the most commonly used innovation measures that can explain the innovation capability of developed country firms. Doroodian et al. (2014) and Bogers and West (2014) questioned the relevance of these measures to explain the innovation capability of FDC. This is because; innovation in FDC is challenged by many barriers that are not found in the advanced economies (Cirera & Maloney, 2017). As Romijn and Albaladejo (2002), Auber (2005), and Cirera and Maloney (2017) indicated, innovation capability in FDC is specified by insufficient knowledge, lack of organizational facilities, absence of R&D activities, and poor cooperation with key actors, and lack of funding for innovation. Hence, FDC must focus to a greater extent on an ICD approach.

The conceptual model by Cohen and Levinthal (1990) provided a methodology to enhance the absorptive capacity of firms through enhancing a firm's knowledge acquisition, knowledge accumulation, and knowledge application. Supported by Cohen and Levinthal (1990), Zahra and George (2002) provided a conceptual model of innovation that has added the concepts of potential and realized absorptive capacity and their dynamic interactions. Nieto and Quevedo (2005) have also discussed the key factors that affect the innovation capability of firms. Many others (e.g., Azabadi, Noorossana, Jafari, Owlia, & Saryazdi, 2012; Bo, 2015) provided a system dynamics (SD) methodology to conceptualize the interactions between knowledge acquisition, knowledge creation, and knowledge utilization using a system dynamics approach. Moreover, Zou, Gou, and Guo (2016) provided a system dynamics model to analyze the interactions between knowledge storage, absorptive capacity, and technology innovation achievements. As a limitation, the above authors mainly focused on enhancing the technical aspects of innovation. On the other hand, Madsen and Smith (2008) underlined that the knowledge management aspect of innovation capability can only indicate the initial phase of ICD. Moreover, Hottenrott and Peters (2009) presented the need to generate a financial return from the sale of new products to sustain innovativeness. However, their studies emphasized the financial/commercial aspects of innovation. These show that the literature has provided only a very sparse account of information on the ICD process via integrating the technical and financial aspects of innovation. The present research highly argues the necessity to integrate the technical and financial aspects of innovation to describe an ICD process for FDC. This research is the first attempt to provide a detailed discussion to integrate these two aspects to develop an ICD process that FDC can find valuable. ICD covers a broad concept and many perspectives. The purpose of this article is not to provide a complete model of ICD. ICD can also include production and marketing aspects. The intention of this article is to mainly address the collective action of knowledge or technical and financial aspects of innovation that FDC is lacking to a greater extent, to boost innovation (Aubert, 2005; Hottenrott & Peters, 2009; Moohammad, Aini, & Kamal, 2014; Cirera & Maloney, 2017). We recommended that future research workers should address production and marketing to enhance the outcome of this research.

LITERATURE REVIEW

Existing ICD literature positions the concept of ICD into different constructs (see Table 1). These include network creation, knowledge acquisition, knowledge creation, knowledge accumulation, knowledge application, absorptive capacity development, technical infrastructure development (acquisition), human capital development, marketing and commercial issues. Taking into account the broad dimensions of these constructs and also referring to the way they are reflected in the literature, this research proposes two perspectives of ICD: the technical and financial/commercial aspects. Accordingly, the technical aspect incorporates the knowledge aspects to enhance the human capital, and the organizational absorptive capacity to enhance the capability to produce innovative products. The financial/commercial aspects consist of the commercialization and financial generation of the innovative products. Nevertheless, these two aspects were not discussed as supportive aspects to each other. The present literature review examines the definitions of innovation capability and elaborates how the technical and financial aspects of innovation capability have been addressed in the existing literature. In general, the literature review provides an insight to create a link between the two aspects of innovation capability to address ICD for FDC (see Figure 1). The figure depicts that, to create innovation capability, both aspects are essential. Furthermore, the figure shows that the technical success of innovation should be accompanied by financial success and the resulting financial success, in turn, should enhance the innovation capability of firms. The resulting innovation capability will consecutively enhance the technical success and this cycle repeats to continuously develop the innovation capability of firms in developing nations.

Hence, the literature review first summarizes (consolidates) the views of different authors on innovation and ICD (see Table 1). Secondly, it specifically looks at the existing innovation measures and their relevance to the specificities of FDC. Thirdly, it presents the entire picture of the relevance of the existing innovation capability models to the specificities of FDC. Finally, it highlights the major gaps in the existing literature and advocates a way forward for firms in developing nations.

Narcizo, Canen, and Tammela (2017) presented different definitions of innovation capability. Particularly, Lawson and Samson (2001) defined innovation capability as the ability to continuously transform knowledge and ideas into new or significantly improved products, processes and systems for the benefit of the firm and its stakeholders. Choudhury (2010) also stated innovation capability as the ability to create new and useful knowledge based on previous knowledge. The definitions of innovation capability mainly explain the significance of knowledge acquisition and creation to enhance the knowledge base and the knowledge application capabilities of organizations. According to these definitions, innovation capability involves all the steps and efforts that firms should consider to acquire knowledge in order to develop successful products, processes or organizational systems. In the same vein, many researchers (e.g., Zahra & George, 2002; Galanakis, 2006; Liao, Fei, & Chen, 2007; Azabadi et al., 2012; Bo, 2015; Zou et al., 2016; Cheng, Yang, & Sheu, 2016) have either related innovation capability to absorptive capacity and/or a knowledge management concept, to explain/develop the innovation capability of firms (see Table 1). However, little attention has been given to the financial aspect of innovation and its integration with the technical aspect (Madsen & Smith, 2008; Roper, Du, & Love, 2008; Hottenrott & Peters, 2009; Hall & Mairesse, n.d.).

The existing innovation measures and their relevance to the specificities of FDC

Some of the studies (Gamal et al., 2011; Kaplan, n.d.) explain that the innovation capability of firms can be evaluated by innovation inputs or outputs. As an input to innovation, Hall and Mairesse (n.d.) described that for firms in developed nations, the level of R&D expenditure had repeatedly been used as the overall indicator of their innovativeness. This is because; firms in advanced countries have a strong internal R&D capability to create/promote innovations (Bogers & West, 2014). However, Doroodian et al. (2014) described the shortcomings of using R&D expenditure to describe the innovativeness of FDC. As the authors argued, R&D expenditure may not essentially lead to innovation, and/or innovation is also everywhere and not just in the R&D lab. Brooks (1994) also said that innovation involves much more than R&D. Bogers and West (2014) specifically noted that FDC has low R&D capabilities to create innovation. Furthermore, for firms in advanced nations, the innovation output is usually specified by the number of patents, the number of publications and citations (Encaoua et al., 2006). However, particularly, patents indicate inventions rather than innovation capabilities (Droodian et al., 2014). Hence, it can be argued that focusing on R&D expenditure, patent, publication and citation data alone, cannot address the innovation capability problems of FDC. Hence, for these firms, the focus must to a greater extent be on building an ICD approach. In effect, the approach should help them to understand the interaction among different constructs of ICD by properly reviewing the existing ICD models in the literature.

The existing innovation capability model's relevance to the specificities of FDC

Some of the existing innovation models...