How do firms from emerging economies enhance innovation through their international joint-venture partners?

Aug 28, 2013, 11:07 ET from American Marketing Association

CHICAGO, Aug. 28, 2013 /PRNewswire-USNewswire/ -- In recent years, firms from emerging economies (EE firms) have invested more heavily in innovation and started catching up with firms from developed economies (DE firms).  As evidence, the total number of patent filings China and South Korea combined exceeded the United States in 2006 ( So, how can EE firms improve their innovation outcomes so rapidly? 


In the study that appears in the September issue of the American Marketing Association's Journal of International Marketing, the authors, Dr. Sunny Sun and Dr. Ruby Lee, argue that an EE firm can build an international joint venture (IJV) portfolio and leverage the network ties embedded in the IJV portfolio to access unique resources and manipulate information flow to improve the EE firm' innovation.  They urge that "a focal firm needs to recognize the multi-level attributes of strategic partner portfolios, i.e., both its resource bases inherited in a given portfolio and its network structural positions in the portfolio."

Using data collected in China, the analysis suggests in general that Chinese firms or firms from other emerging countries that are likely latecomers to the innovation front should maintain more structural hole (i.e., bridge) positions which give the firms opportunities to manipulate information and resource flow from their IJV partners in their own favor.  At the same time, the Chinese firm should avoid high network centrality as too many direct linkages in its IJV portfolio create knowledge redundancy and consensus that could be harmful to its innovation activities and outcomes.  The analysis further shows that when DE partners put more resources into their IJVs with Chinese counterparts, the latter should maintain their stronger structural hole positions to ensure that those DE partners are not well connected to each other.  Doing so not only reduces the possibility of being sanctioned by the DE partners, but also enables the DE partners to rely more on the Chinese firms in order to succeed in the Chinese market. 

Apart from the managerial implications, this study provides important evidence to EE public policy makers and alike that positive spillovers from foreign direct investment through DE partners to EE firms do exist.  Network-based market knowledge is found crucial to EE firms to improve their innovations.  Therefore, EE policy makers should consider encouraging more IJVs that could generate positive knowledge spillovers to domestic firms, enabling them to catch up quickly with DE firms.

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SOURCE American Marketing Association