Innovations and firm-level efficiency: a comparative analysis between China and India

Abstract

PurposeThis study examines the innovation-efficiency linkage for Indian and Chinese manufacturing and service firms.Design/methodology/approachWe applied the stochastic production and cost frontier approach to determine the output and cost efficiency of the firms surveyed in World Bank enterprise surveys. We then used both unconditional and conditional propensity score matching (PSM) estimation techniques to examine the effects of innovation as well as R&D on output and cost efficiency of the firms surveyed.FindingsThe study results suggest that innovation-efficiency linkage varies between countries and sectors. Innovations significantly raise output and cost efficiency of Indian manufacturing firms, whereas innovations in Chinese manufacturing firms are cost-oriented and negatively affect output efficiency. For the service firms of both countries, innovations are significantly positively linked with output and cost efficiency. The study also suggests that R&D acts as a crucial moderator for innovation-efficiency linkage for Chinese manufacturing firms but not for Indian firms, and the interaction effects of innovations are not substantially higher in magnitude than their individual effects. Finally, conditional PSM results suggest knowledge spillover for effective innovations of Indian firms, whereas R&D is a must for substantial innovation-efficiency linkage in Chinese firms.Originality/valueThis study offers quite a few crucial policy decisions concerning the relationship between innovation and efficiency as well as the moderation effect of R&D on innovation-efficiency linkage. It concludes that the effects of innovation on firms' efficiency and the role of R&D as a moderator of the innovation-efficiency relationship differ between India and China across the manufacturing and service sectors.

Recognizing nonmonotonicity of exogenous determinants in a stochastic profit efficiency framework: have banks overinvested in IT capital?

“…The linkage between IT investments and sectoral efficiency has been a widely studied area in the literature (Berger and Mester, 1997; Beccalli, 2007; Kwateng et al , 2019; Tian et al , 2019; Phan et al , 2020; Islam and Fatema, 2020). However, relatively few studies acknowledge the nonmonotonic influence of IT on efficiency.…”

“…Contrastingly, R&D expenditure plays a vital role in improving efficiency (Asongu et al , 2017, Hu et al , 2019; Tian et al , 2019; Phan et al , 2020; Islam and Fatema, 2020; Juhro et al , 2020). Hollanders and Esser (2007) contend that R&D is related to the concept of productivity.…”

“…Arora and Rahman (2017) highlight the importance of R&D by advocating that IT investments must be complemented with organizational resources to create competitive advantages that are difficult to imitate. More recently, Islam and Fatema (2020) highlight the importance of R&D as a moderator in influencing the innovation-efficiency linkage for Indian firms. On similar lines, Tian et al (2019) contend that competition drives innovation efficiencies and induces frontier-shifting expansion.…”

Innovation Strategies to Reduce SMEs’ Bankruptcy Prediction During COVID-19 Pandemic in Central Java

“…Research conducted by Ferreira et al (2020) used many things related to R&D (Research and Development) in measuring the innovation variables conducted by SMEs in Portugal. Another study stated that R&D is the main resource for how company innovation can be conducted (Islam & Fatema, 2020).…”

Do innovations improve firm performance in the Indian manufacturing sector? A mediation and synergy effect analysis

“…However, the literature focussing on innovation through external collaboration reports both positive and negative implications for innovation. In a comparative study between China and India, Islam and Fatema (2020) identified knowledge spillover in the Indian manufacturing sector, whereas innovation in Chinese firms is highly significant if undertaken alongside R&D. The literature suggests that there are several reasons for the positive effect of developing innovation through external collaboration, such as low resources and capabilities to respond to innovation demands (Yli-Renko et al, 2001), the capacity to deliver innovations to market (Lipparini and Sobrero, 1994), the likelihood of successful innovation (Zahra and Bogner, 2000), and finally the leverage of unique knowledge with partners (Jarillo, 1989). Conversely, studies that challenge the benefits of external collaboration in innovation argue that collaboration results in complexities in the coordination and protection of intellectual property (Kelley et al, 2009;Soh, 2003).…”