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International Entrepreneurship and Management Journal 1, 313–333, 2005 c 2005 Springer Science + Business Media, Inc. Manufactured in The United States. 

Corporate Innovation and Competitive Environment MORTEN HUSE [email protected] Norwegian School of Management, BI, Oslo, Norway, & Bocconi University, Milan, Italy DONALD O. NEUBAUM Oregon State University, College of Business, USA

[email protected]

JONAS GABRIELSSON∗ [email protected] CIRCLE, Lund University, Lund, Sweden, & Norwegian School of Management, BI, Oslo, Norway

Abstract. Empirical studies have shown that the characteristics of the competitive environment influence the corporate innovation activities of U.S. firms. This study attempts to internationalize these studies in two ways. First, it examines the environment-corporate innovation relationship in Norwegian manufacturing firms. Second, it examines how the firms’ corporate innovation activities are influenced by their international activities. Results indicate that environment and internationalization are positively related to corporate innovation, but models developed using U.S. firms may not be generalizable to firms from other countries. Keywords:

corporate innovation, internationalization, environment

Authors have long argued for the importance of understanding entrepreneurship from the perspective of a firm’s behavior (Covin and Slevin, 1991; Guth and Ginsberg, 1990; Slevin and Covin, 1994; Wiklund, 1999; Zahra and Covin, 1995; Zahra, Jennings and Kuratko, 1999). Corporate innovation (CI) is an important dimension when this perspective is used. CI consists of product, process and organizational forms of innovation (Butler, 1988; Knight, 1967; Zahra, 1991) that stem from incubative, acquisitive and imitative sources (Burgelman and Sayles, 1986; Link, 1988; Pisano, 1990). CI is increasingly becoming the key to success in today’s globally competitive markets (Zahra and Garvis, 2000). Emerging global markets and rapid technological development make strong demands on the ability of companies to develop and utilize its resources and capabilities. By being engaged in CI, the company can meet these pressures and compete vigorously, renew its operations, create new revenue streams and improve shareholders’ value. The relationship between a firm’s external environment and CI has long been a subject of interest in the management literature, and several studies have shown that the characteristics of the external environment influence the type and source of firms’ CI activities (Covin and Slevin, 1989; Guth and Ginsberg, 1990; Lumpkin and Dess, 2001; ∗ Corresponding author. Jonas Gabrielsson, CIRCLE, Lund University, P.O. Box 117, S- 221 00 Lund, Sweden. Tel.:+46 (0) 709 95 64 47.

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Tsai and MacMillan, 1991; Zahra, 1991, 1993a, 1996). A general finding in these studies is that conditions in the firms’ competitive environment, such as dynamism, hostility and heterogeneity, are antecedents of CI activities. For example, firms operating in turbulent and fast changing industries are usually characterized by rapid and frequent new product creation and high levels of R&D spending and patenting (Covin and Slevin, 1989; Guth and Ginsberg, 1990; Lumpkin and Dess, 2001). Moreover, in a series of studies Zahra (1991, 1993a, 1996) has showed that firms competing in dynamic and growing environments put a greater emphasis on product and process technology introductions compared to firms competing in stable, non-rivalrous environments. Hence, it appears as if conditions in the firms’ competitive environment play a profound role in influencing CI activities. However, despite the important contributions of the above mentioned studies, these and other similar studies share two important limitations. First, while some studies have considered the CI activities of non-U.S. firms (e.g., Hisrich, 1988; Manu, 1992) most studies of CI have focused exclusively on U.S. firms (Giamartino and McDougall, 1993). Few, if any, have examined the environment-CI relationship in non-U.S. firms (Zahra et al., 1999). CI and environment-CI relationships, however, can be influenced by cultural factors or differences in the market structures of different countries (Morris, Davis and Allen 1994; Porter, 1990; Shane, 1994). Countries vary along several dimensions which may influence CI, such as political systems, innovation climate and culture (Boyacigiller and Adler, 1991; Hofstede, 1983; Mueller and Thomas, 2000). Despite these differences management education and literature in many countries are based on studies using U.S. samples. Managers operating in other countries need to understand whether findings from U.S. studies are generalizable to other countries and cultures (Zahra et al., 1999). Thus, there is a need to determine if the relationships between the environment and CI identified in previous studies hold in non-U.S. settings. This study attempts to address this shortcoming on past studies by examining the environment-CI relationship using a Norwegian sample. Second, while some studies have analyzed the relationship between the environment and the firm’s international activities (e.g., H˚akansson and Johansson, 2001), few studies have analyzed how a firm’s international activities are associated with firms’ CI activities. This shortcoming is surprising given the evidence that internationalization and innovation are becoming increasingly intertwined (H˚akansson and Johansson, 2001) and as innovation has become a major source of international competitive advantage (Hitt, Hoskisson and Ireland, 1994; Zahra and Garvis, 2000). These competitive advantages can include comparative advantages by obtaining access to lower cost production factors in other countries, as well as the firm’s ability to obtain economies of scale in production, marketing or purchasing through high level of export. From a resource-based view, firms engaged in international activities possess a different stock of organizational resources, which may increase their ability to innovate (Kotabe, 1990). Based on the discussion above, we will argue that there are shortcomings in our knowledge of how characteristics of the external environment influence the CI activities of firms outside U.S., as well as how a firm’s international activities are associated with firms’ CI activities. This study, therefore, addresses the following two questions:

CORPORATE INNOVATION AND COMPETITIVE ENVIRONMENT

Figure 1.

315

The research model of the study.

(1) Can previous theory and measures of the environment-CI relationship be generalized to a non-U.S. setting? (2) Are a firm’s international activities related to the firm’s CI? The perspective taken in this study is illustrated in Figure 1. The remainder of this paper is divided into four sections. First, the study’s theory and hypotheses are introduced. The categories of CI and the environment are presented, followed by a discussion of how the environment and international corporate activities are hypothesized to be associated with CI. Second, an explanation of the study’s methodology is provided. Third, the results are discussed and compared to studies using U.S. samples. Finally, the paper concludes with a discussion of the study’s implications, limitations, and future research questions. Theory and hypotheses Types and sources of corporate innovation Innovation is often conceptualized as the outcome of novel and creative (re) combinations of existing knowledge and resources (Penrose, 1959; Prahalad and Hamel, 1990; Schumpeter, 1934). These innovations can assume many forms, such as new products or services, new production methods, or new organizational systems or structures; they can also be internally generated or acquired from outside sources (Damanpour, 1991;

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Utterbach, 1996). The literature, therefore, recognizes that CI consists of a full range of activities and is a multidimensional concept (Garcia and Callantone, 2002). This paper supports this multidimensional view of CI by examining both the types and the sources of innovation commonly recognized in the literature. As indicated in Figure 1, when examining how the environment influences innovation the need to view CI from a multidimensional perspective is particularly important (Garcia and Callantone, 2002; Zahra, 1993b). Firms pursue different strategies in different environments (Covin and Slevin, 1989; Miller and Friesen, 1984). An environmental condition which stimulates a firm’s emphasis on one dimension of CI may not necessarily lead to equal attention being given to another dimension of CI (Lumpkin and Dess, 2001; Stetz, Howell, Stewart, Blair, and Fottler, 2000). The mix of CI activities will vary as firms pursue distinct combinations of these activities in different environments (Kreiser et al., 2002; Zahra, 1993b). Even in stable environments, firms continually adopt different types of innovations over time (Hage, 1980). CI types refer to the nature or focus of innovations the firm pursues to achieve its objectives. Innovations can be distinguished in three ways: (1) the development of new products and services, (2) the adoption of new technologies with the intent to improve methods of production, and 3) the establishment of novel organizational structures and administrative systems (Damanpour, 1991; Kamm, 1986). Each of these types of CI reflects drastically different activities, yet the firm must simultaneously juggle all three types of innovation to be successful (Kamm, 1986). Product innovation represents a firm’s efforts to create new products or services, or modify those products or services the firm already possesses (Butler, 1988; Porter, 1985). These innovative efforts are focused on extending or revising the product or service line the firm presently offers in an effort to meet certain market needs. Product innovation can be used to respond to customer needs, introduce new product features or styles, or extend the life of an existing product. Process innovation reflects the firm’s interest in altering the manner in which its products or services are created (Butler, 1988; Schroeder, 1990). Process innovation can include changes in the raw materials used, new task specifications or work flows, or changes in the machines used in production or service delivery (Utterbach and Abernathy, 1975). Process innovation can either lower the firm’s costs of delivering goods and services to its customers or increase the quality, efficiency or effectiveness of the goods and services the firm provides. Organizational innovation reflects the firm’s attempts to encourage innovation through various organizational systems (Damanpour, 1987; Van de Van, 1986). The firm’s structure, decision making processes, and incentives and training programs can be altered through the introduction of novel administrative systems to foster innovative behavior. Innovation may also arise from various sources. Innovation sources refer to the manner in which firms acquire, develop, or gain access to innovations. Several internal and external sources of innovations are available (Pisano, 1990). The three major sources of innovation examined in this study are: (1) incubative innovation, (2) acquisitive innovation, and (3) imitative innovation. Incubative innovation focuses on the internal creation and generation of innovations through the organization’s own efforts. Incubative innovations are generally developed

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in the firm’s own R&D labs. These innovations represent risky research investments and it may take several years before they can be adopted or implemented by the firm. Acquisitive innovation involves gaining access to innovations by searching for sources outside the firm. These innovations can be acquired through a variety of mechanisms, such as purchases, licensing agreements, or joint ventures (Burgelman and Sayles, 1986). Through acquisitive innovation, the firm may gain quick access to the innovations it needs. Imitative innovation involves a firm’s attempts to copy or imitate the products, services or processes of its rivals or firms in other industries (Mansfield, 1988). These innovations are identified and then integrated into the firm’s current practices. As with acquisitive innovation, imitative innovation may enable the firm to adopt innovations more quickly and with less risk than if the firm could use incubative innovation activities.

Relationships between the environment and innovation Organizations depend on the environment for resources and for the justification of their continued existence (Pfeffer and Salancik, 1978). Because the environment is complex and volatile, long-term competitiveness requires organizations to constantly be open to signals regarding current and future conditions of the environment, and to apply this knowledge to change their own behavior and positioning in its markets in a timely way. One question this study attempts to answer is how the dimensions of the external environment affect the types and sources of innovation utilized by firms. External environmental conditions attract the attention of managers and can subsequently influence the firm’s strategic choices (Zahra, 1993a). The environment, while difficult to control, is assumed to influence managerial action and organizational outcomes (Covin and Slevin, 1989; Keats and Hitt, 1988). During the pursuit of CI initiatives, before taking action managers must interpret and consider the specific conditions of the environment. While there is considerable debate regarding the method to adequately measure an executive’s perceptions of the external environment (Boyd, Dess and Rasheed, 1993), three of the most commonly accepted dimensions of the environment are heterogeneity, dynamism, and hostility (Dess and Beard, 1984; Keats and Hitt, 1988; Miller and Friesen, 1984). These three dimensions have been used in several studies of U.S. firms’ CI activities (e.g., Zahra, 1991). The use of these environmental dimensions, therefore, will allow a more direct comparison of the environment-CI relationships in U.S. and non-U.S. samples. Heterogeneity. Heterogeneity is the amount of diversity, multiplicity and complexity in the firm’s competitive environment. Firms competing in heterogeneous environments confront a greater number of customer wants, tastes and needs (Miller and Friesen, 1984). Zahra (1991) found a positive relation between environmental heterogeneity and innovation in a study of Fortune 500 firms. Since heterogeneity increases the number of opportunities and threats, firms in these environments tend to aggressively pursue innovation. New business opportunities can be particularly important in heterogeneous environments (Peterson and Berger, 1971; Wilson, 1966).

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Heterogeneous markets are hypothesized to be positively associated with the various types of innovation that was previously identified. The pressure to meet the diverse needs of heterogeneous markets is likely to encourage product innovation initiatives. Process innovations may enable the firm to meet consumers’ diverse needs in a costeffective manner. Likewise, since meeting multiple demands is critical to success in heterogeneous markets, firms can increase their ability to meet these numerous demands by introducing or adopting organizational systems that stimulate innovation. These organizational innovations, therefore, will be emphasized in heterogeneous markets. As with the types of innovation, the sources of innovation may be positively associated with environmental heterogeneity. Any source of innovation which increases the firm’s ability to fill the diversity of needs found in heterogeneous markets will be valued by the firm. Market heterogeneity will push the firm to gain access to as many new innovations desired by the market as possible; the source of the innovation is not particularly important. Incubative measures can be initiated by the firm to address the diversity in the market segments. In heterogeneous environments, firms are readily able to learn from one another, which support imitative innovation (Keats and Hitt, 1988). Keats and Hitt (1988) also note that joint ventures and other organizational arrangements are frequently used by firms to reduce the uncertainty posed by heterogeneity. Acquisitive innovations, therefore, are likely to be associated with market heterogeneity. Each of these sources of innovation can increase the firm’s ability to fulfill a multitude of product and market demands. This discussion leads to the following hypotheses: H1: Environmental heterogeneity will be positively associated with the types and sources of corporate innovation. The more heterogeneity, the more innovation. Dynamism. Environmental dynamism refers to the extent of the unpredictability of change within the firm’s environment (Boyd et al., 1993; Zahra, Neubaum and Huse, 1997). This change can arise from many sources, including the introduction of new products, processes and technologies, and from changes in the regulatory or competitive landscapes. Earlier studies have found that environmental dynamism encourages innovation and entrepreneurial behavior (Miller, 1983; Miller, Droge and Toulouse, 1988; Zahra, 1991). Organizations and the people in them learn through interactions with the environment (Cohen and Levinthal, 1990) and changes in the external environment may open many new windows of opportunity, thus spurring a company’s quest for innovation to benefit from these developments (Zahra, 1991). Environmental dynamism is likely to stimulate the firm to increase its CI activities. Environmental changes and volatility can encourage innovation as firms attempt to take advantage of new opportunities created by change. Dynamism can also deplete the firm’s competitive advantages; one way to sustain advantages is to continually upgrade them through innovation initiatives (Porter, 1985). Dynamism can create new opportunities in the market, which may direct the firm to consider product innovation to take advantage of these new opportunities (Miller and Friesen, 1982). Environmental change can cause the firm to search for new means for remaining competitive which foster process innovation activities. Innovation can also be of particular importance

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in dynamic environments as the firm can use novel organizational systems to induce innovative behavior. The innovations which arise through the adoption of these administrative mechanisms can help the firm keep pace with their changing environment. The sources of innovation may also be positively associated with environmental dynamism in the firm’s environment. In an effort to keep abreast with the dynamic environment, firms will seek a variety of innovations. Through their own incubative innovation efforts, firms may introduce change within their own markets. Although it is potentially time consuming, incubative innovation is likely to be high in dynamic environments. Since the pace of change is rapid in dynamic environments, firms must gain access to new products and technologies quickly (Haskins and Petit, 1988). Both acquisitive and imitative sources of innovations enable firms to rapidly adopt new innovations. Any method, therefore, which enables the firm to gain access to new technologies and innovations will be valued. The following hypothesis, therefore, is presented: H2: Environmental dynamism is positively associated with the types and sources of corporate innovation. The more environmental dynamism, the more innovation. Hostility. Environmental hostility indicates the amount of unfavorable external forces for a firm’s business that threaten its mission or outputs. Hostile environments are those where the conditions facing the firm are perceived as harsh and threaten the firm’s ability to effectively compete (Miller and Friesen, 1982; Zahra et al., 1997). Characteristics of a hostile environment can include intense competitive pressures, low margins and a harsh business climate which offers few opportunities to exploit (Covin and Slevin, 1989). In hostile environments, firms are hypothesized to increase their innovation activities. Aggressive entrepreneurial firms can match the competitive requirements of the hostile environment by creating and maintaining a competitive advantage (Covin and Slevin, 1989). Firms may also rely on innovation activities in an effort to lower their production costs or increase their marketing and distribution efficiency in the face of intense competition within their industry. All types of innovations are likely to be pursued by firms which view their environments as hostile. Product innovation can enable the firm to shift its product focus and compete in market segments which may be less hostile or rivalrous (Keats and Hitt, 1988). Process innovations can be used to lower production costs, which will allow the firm to become more competitive as environmental hostility increases. Hostility often shrinks firms’ profit margins, which may pressure firms to more seriously consider process innovation efforts. Hostility may also force the firm to implement organizational mechanisms to increase their ability to introduce innovations or initiate self-renewal programs (Covin and Slevin, 1989). As with the types of innovation, all sources of innovation are likely to be pursued in hostile environments. The pressures to remain competitive encourage firms’ to pursue initiatives through incubative innovation. Similarly, hostile environments may force firms’ to quickly respond to the innovations introduced by their competitors. In this case, acquisitive and imitative sources of innovation enable the firm to match the competitive moves of rivals or firms in adjacent industries.

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The support for a positive relationship between environmental hostility and innovation has not been unambiguous. Zahra (1991) found strong positive relationships between environmental hostility and innovation. Other studies have indicated only a weak impact (Covin and Slevin, 1989; Miller, 1987). The arguments lead, however, to the following hypothesis: H3: Environmental hostility is positively associated with the types and sources of corporate innovation. The more environmental hostility, the more innovation. Internationalization and innovation The second research question this article addresses concerns the relationship between a firm’s international activities and its propensity to engage in CI. Firms become involved in international business for a variety of reasons, and several theoretical justifications have been forwarded to explain this phenomenon. These explanations include market failures (Buckley and Casson, 1976), increased knowledge of international markets (Johansson and Vahlne, 1977), and the product life cycle theory (Vernon, 1966). Regardless of the reasons for becoming international, firms engaged in international competition can gain advantages over their purely domestic competitors by expanding the firm’s knowledge base (Johansson and Vahlne, 1977) thereby increasing the ability to revitalize and renew the firm’s products and strategies (Zahra and Garvis, 2000). There are several reasons why internationalization is proposed to be positively associated with CI (Hitt et al., 1994). First, international activities provide potential for firms to achieve greater return on their innovations. The costs of pursuing large scale R&D activities may require a large customer base that can only be realized by a firm competing in numerous international markets (Kobrin, 1991). A firm can capitalize on the resources that may exist in various locations (Porter, 1990) thereby revitalizing its business by entering new economic regions or foreign markets (Zahra and Garvis, 2000). Thus, international activities will provide incentives for firms to innovate. Furthermore, international activities allow companies to interact more closely with each other and thereby handle critical problems in a way that in the long run is beneficial for all parties involved. The international marketplace can become a virtual R&D lab for the firm as experiences in international markets provides a rich base for tapping various global sources of innovation (Kotabe, 1990, 1992). Firms with extensive international activities are embedded in a network of relationships that provides a potential base for interaction among knowledge bases and technologies (H˚akansson and Johansson, 2001). These firms are exposed to a wider variety of products, services, and production methods and may attempt to integrate these novel experiences into their existing operations. International experiences, therefore, are likely to provide the firm with a stronger foundation to pursue innovation activities in a more extensive manner. The reasoning above suggests that innovation activities of internationally active firms can be influenced by the firm’s increased access to new technologies and innovations.

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These justifications have led researches to propose that international diversification is positively associated with innovation (Hitt et al., 1994). While this, of course, remains an empirical question, this study attempts to add to the literature and determine if internationalization is positively associated with the types and sources of CI. The following hypothesis, therefore, is presented for empirical testing. H4: International activities are positively associated with the types and sources of corporate innovation. The more international activities, the more innovation. Method Sample and data To test the study’s hypotheses, an associative cross sectional field survey (Wallace, 1983) was designed, and survey data were collected from Norwegian manufacturing companies. Norway is a small country, and its firms tend to be highly internationalized. The country’s gross national product per capita is among the highest in the world. Norway is a social democratic society, and compared to the U.S., there is a high percentage of public ownership. Management and corporate innovation education and literature in Norway are very much inspired from the research findings gathered in studies of U.S. firms. These issues made Norway an interesting country for the purpose of comparisons. The data (n = 277) came from Norway’s 1000 largest manufacturing companies and represented eight two-digit SIC groups. Initially, the 1000 firms on Okonomisk Litteratur’s (1992) list of Norway’s largest industrial firms were considered. Ninety-six companies, however, were excluded because they were conglomerates or because of a merger or bankruptcy. Two mailings, three weeks apart, were used. During this time twelve undeliverable questionnaires were returned. Of the 892 remaining firms, 277 returned completed questionnaires for a response rate of 31 percent. The mail survey targeted the CEO, who was considered the most informed individual about the firm’s environmental and CI issues. On the occasions where a person other than the CEO responded, an analysis of the respondent’s title indicated that he or she was among the company’s most senior executives. No significant difference was found when comparing responding and nonresponding firms on size (measured by the number of employees). The Norwegian firms included in this study are among the largest in the country. The results may not be the same for firms of other sizes. Large companies, however, were chosen so that the results from this study could be compared to CI studies of U.S. firms. Measures Survey data were collected on four sets of variables: the company’s perception of its environment, the extent of its internationalization activities, its CI activities, and control

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variables. The environment and innovation variables were constructed to mirror, as much as possible, those utilized in U.S. studies (e.g., Zahra, 1991, 1993a). A five-point response format was used (1 = very low vs. 5 = very high). The measures were validated by factor analyses and estimations of Cronbach’s alpha (Nunnally, 1978). In each case, responses to multiple items were averaged; the average was then used in subsequent analyses. Table 1 presents the descriptive statistics of the variables. Environment. The CEOs responded to measures of environmental heterogeneity (three items; alpha = 0.59), dynamism (six items; alpha = 0.59), and hostility (six items; alpha = 0.73). Heterogeneity items were: “Number of market segments or groups which you serve,” “Diversity of your customers’ needs and buying habits,” and “Number of markets in which you compete”. Dynamism items were: “Rate of obsolescence in production technology,” “Unfavorability of demographic changes,” “Industry-wide spending on advertising,” “Intensity of industry-wide promotion efforts,” “Competition based on service,” and “Competition based on quality”. Finally, the items for hostility were: “Unfavorability of governmental regulations,” “Unfavorability of market conditions,” “Unfavorability of market changes,” “Unfavorability of competitive conditions,” “Competition based on price” and “Rate of bankruptcy in the industry”. Internationalization. The internationalization measures should capture the extent of the firm’s activities that are conducted in foreign countries. Two variables were used to measure various aspects of a firm’s international activities: (1) the natural log of the percentage of total production taking place in foreign countries (“International production”) and (2) the natural log of the number of countries the firm exported to (“No. of export countries”). Variables measuring other aspects of a firm’s international activities might have been used, e.g., R&D in other countries, the firm’s import or export intensity, number of employees in other countries, composite measures internationalization, etc. Different measures might lead to different results. These limitations should be considered when interpreting the results of the study. Correlations between various internationalization measures were, however, computed. Correlations higher than .50 were found between “No. of export countries” and the percentages of employees in other countries (.50), and the percentages of sales to (.72) and income from (.73) other countries. Correlations higher than .40 were found between “international production” and percentages of R&D budgets spent in other countries (.42) and the percentages of employees in other countries (.75). Corporate innovation. CEOs responded to measures of product innovation (seven items; alpha = 0.83), process innovation (six items; alpha = 0.87), organizational innovation (eight items; alpha = 0.87), incubative innovation (four items; alpha = 0.73), acquisitive innovation (five items; alpha = 0.78), and imitative innovation (seven items; alpha = 0.84). The individual items for each of these measures of innovation can be found in the appendix. Control variables. Our sample consists of companies of various sizes. Company size has been suggested to have an effect on CI activities (Cohen, Levin, and Mowery, 1987; Ravenscraft and Scherer 1982;). Size has also been considered to affect a firm’s international activities (Manu, 1992). We therefore choose to include company size as a control variable in the study, measured by the natural log of the firm’s number

.15 .23 .04 .14 .13 .33 .16 −.05 .34 .23 .21 3.25 .94

.15 .10 .03 .28 .27 .16 .19 −.04 .14 .18 .13 4.97 1.14

.14 .38 .14 3.48 .87

.35 .19 .22 3.02 .79

.24 .22 .10

.37 .17

−.01 −.12 .19 .03 −.04

.34 .34



4

.04 .05 −.08



3

.33 .15 .27 2.79 .52

.13 .33 .08

.25 .13

– .24

5

Pearson’s product moment correlation coefficients. Correlations have to be .09 to be significant at p < .05 (1-tailed). N = 277.

.43



2

.03 .02



1

Descriptive statistics. Intercorrelations among the study’s variables.

Size and industry 1. Company size 2. Prod. inn. opportunities 3. Tech. opportunities Environment 4. Heterogeneity 5. Dynamism 6. Hostility International activities 7. No of export countries 8. International production Innovation sources 9. Incubative 10. Acquisitive 11. Imitative Innovation types 12. Product 13. Process 14. Organizational Mean St. deviation

Table 1.

.03 −.06 −.00 3.05 .70

.04 .07 .09

.07 .00



6

.34 .30 .20 1.54 1.26

.27 .39 .07

– .38

7

.24 .08 .05 .59 1.22

.19 .26 .07



8

.49 .41 .56 3.68 .67

– .26 .00

9

.37 .39 .41 2.11 .75

– .28

10

.13 .05 .19 2.55 .66



11

– .46 .40 3.09 .75

12

– .39 2.60 .81

13

– 3.32 .80

14

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of employees in 1992. Figures from Okonomisk Litteratur’s (1992) list of firms were used. As the sample consisted of firms from many industries, two variables were used to control for industry variations. A condition distinguishing between various industries in relation to innovation is the extent to which technological and innovation opportunities in the industry (Slevin and Covin, 1994; Zahra, 1996). We, therefore, used variables to control for these variances in each industry. Measures capturing product innovation opportunities and the technological opportunities were gathered from the CEOs. The following items were used to measure the two variables respectively: “opportunities for product innovation in your company’s major industry,” “opportunities for technological innovations in your company’s major industry”. Even though we tried to use measures that reflected the same concepts describing the environment and corporate innovation that were used in studies of U.S. samples, we were unable to use the exact same items. The extents of these differences, however, are small and are unlikely to impact the conclusions. Analyses The first step was to examine the intercorrelations among the independent variables. The correlations between the predictor and control variables were low or moderate (see Table 1). The highest correlations were between the two variables measuring industry innovation opportunities (.43), between the two variables measuring international activities (.38), and between heterogeneity and “No. of export countries” (.37). The correlation table indicates the measures’ independence. Hierarchical multiple regression analyses were used so that the unique effects of the environmental variables, and the firm’s international activities on the firm’s CI activities, above and beyond those associated with the control variables, could be captured. Three steps were thus used in the regression analyses. The six innovation variables (product, process, organizational, incubative, acquisitive, and imitative innovation) were treated as dependent variables. The other variables were entered in three steps. In the first step, the control variables were entered. Change F step one indicates the importance of the control variables. In the second step, the environmental variables were entered. Change F step two indicates the additional contribution of the environmental variables. In the third step, the internationalization variables were entered. Change F step three indicates the additional contribution of the internationalization variables. A main limitation in this study is that it uses a cross-sectional design, and accordingly, causal inferences should not be made. Results Table 2 displays the results from the regression analyses. The table reports the standardized partial regression coefficients (beta), adjusted Rsquares, F-values, and changes in F-values for each step.

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Table 2.

Multiple regression analysis. Incubative Acquisitive Imitative Product 1 2 3 4

Step 1-Control Company size Prod. inn. opportunities Tech. opportunities Step 2-Environment Heterogeneity Dynamism Hostility Step 3–International activities No. of export countries International production Adj R2 F full model Change F step 1 Change F step 2 Change F step 3

.07 .25*** .10

.07 .05 .01

Process 5

Orga. 6

−.08 −.09 .01

.02 .22*** .04

.06 .05 .06

.21*** .17** −.10’

−.09 .05 −.09’

.13’ .19** −.10

.26** .09’ .26 13.4*** 14.2*** 14.3*** 6.1**

.25*** −.05 .24 12.0*** 20.0*** 4.1** 8.5***

.08 .00 .12 5.5*** 6.5*** 7.3*** 0.8

.13* −.02 −.01

.00 .22*** −.01

.14* .10’ .18 8.4*** 14.7*** 3.3* 5.1***

.28*** . 04 .09 .08 .21 .01 10.2*** 1.2 6.5*** .5 9.5** 1.9 13.5*** 1.3

.09’ .02 .35***

.07 .11’ .07

Stardardized partial coefficients (beta-coefficients). N = 277, 1-tailed significance: ’ < .10, ∗ < .05, ∗∗ < .01, ∗∗∗ < .001.

Table 2 shows that the control variables (step 1) had a significant contribution in explaining innovation in all the equations, except for imitative innovation (equation (3)). The environmental variables included in step two significantly increased the explanatory power in each of the equations, but for the equation concerning imitative innovation. Change F in step three shows that the international activities variables increased the explanatory power of the model above and beyond the effects of the control and environmental variables in four of the six equations. The increase in F was insignificant in equation three (imitative innovation) and equation six (organizational innovation). The full model in all equations, except for equation three, was significant and explained between 12 and 26 per cent of the variance. Hypotheses 1–3: Environment and innovation. Overall, the results suggest that the firm’s environmental conditions are significantly related to innovation, but as indicated by Slevin and Covin (1994), the various aspects of the environment are related to diverse “micro-strategy” variables. We found that environmental heterogeneity (Hypothesis 1) was positively related to incubative, product and organizational innovation. Environmental dynamism (Hypothesis 2) was positively related to acquisitive, product and organizational innovation. Hypothesis 3 received no support as hostility was insignificantly or negatively related to the six CI variables. An interesting feature was that none of the environmental variables were positively related to process innovation. Hypotheses 1 and 2 were thus only partially supported. These results contradict the findings of Zahra (1991), which the current study the most closely resembles. Zahra’s (1991) findings indicated a strong positive relation between environmental hostility and innovation

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types. We did not find any positive relation between hostility and the various innovation types. These results, therefore, suggest that the environment-innovation relations identified in studies using U.S. samples may not be generalizable to non-U.S. samples. One reason why heterogeneity was not related to process innovation may be that environmental heterogeneity provides multiple opportunities for serving different product and market niches and may reduce the advantages of economies of scale and cost leadership (Porter, 1980), which process innovation provides. Product innovation is likely to be related to serving new product and market niches, while process innovation may be related to cost leadership strategies. Environmental dynamism followed another pattern. Dynamism was positively related to acquisition innovation. In dynamic environments, firms will seek innovation sources that give them access to new products and technologies quickly (Haskins and Petit, 1988). Acquisition is the source that gives the quickest access to innovation, while incubative innovation is the most time consuming. The positive relationships between dynamism and the types of innovation may be explained by the need to rapidly search for new means to remain competitive in changing environments. Why we did not find any relationships between environmental hostility and innovation remains a core question to be answered. Perhaps the reduced profitability and resource levels under hostile conditions have negative effects on innovation which offset the increased motivation to innovate. Hypothesis 4: International activities and innovation. Two measures of a corporation’s international activities were used. The number of countries the corporation exported to (“No of export countries”) and the relative amount of the production that took place in other countries (“International production”). The relationships between “International production” and innovation were, in general, insignificant. The positive relationships between “International production” and incubative and product innovation were significant at a .1 significance level. The “No of export countries” variable was, however, generally significantly related to innovation. The relationships between acquisitive innovation, product innovation and process innovation were particularly strong. Hypothesis 4, therefore, was partially supported. The positive relationships between acquisitive innovation and “No of export countries” may be due to the fact that internationalization provides greater opportunities for firms to acquire innovation. Licensing agreements, joint ventures, and foreign direct investments are acquisitive mechanisms frequently used by firms as they gain experience in international markets (Glickman and Woodward, 1989). International experiences will also expose the firm to a greater number of novel products, services, and features. This exposure may stimulate the firm’s propensity to engage in product innovation activities as these product innovations reflect the product knowledge gained in the global marketplace. Also, the risks and returns from product innovation can be spread more easily by the globally active firm (Hitt et al., 1994). The firm’s effort devoted to process innovation is also likely to increase as the firm comes in contact with organizations which rely upon a wider variety of production and process methods. This exposure to novel production methods could lead the firm to include these methods in their own operations.

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Discussion There seem to be a general consensus in management theory and research that the external competitive environment is an important antecedent of CI. However, there has been little empirical research on the association between various dimensions of the competitive environment and CI in non-U.S. settings. This paper attempted to address two specific questions: (1) is the nature of the relationship between the competitive environment and the CI activities of Norwegian manufacturing firms comparable to those of U.S. firms, (2) what is the nature of the relationship between the extent of a firm’s internationalization efforts and its innovation activities? These and other contributions are presented in the paragraphs below.

Contributions The most significant difference between the results obtained from the U.S. and the Norwegian sample is the relationship between environmental hostility and CI. Specifically, Zahra (1991) found that hostility was significantly positively associated with both internal and external CI for the Fortune 500 firms in his study. In another study of 102 U.S. manufacturing firms, Zahra (1993a) found that environmental hostility was positively associated with some dimensions of CI, such as product innovation. Similarly, Covin and Slevin (1989) and Zahra and Covin (1995) found that CI activities were more strongly associated with higher performance in hostile environments. For the large Norwegian firms in this study, however, no positive relationship between hostility and CI existed. These results seem to suggest that the phenomenon of CI is context-specific and that models developed using samples of firms from one country cannot necessarily be generalized to firms from other countries. While this surprising difference may be traced back to methodological factors, e.g., using a linear method to test for a nonlinear relationship (Fombrun and Ginsberg, 1990), differences in items used to measure variables, or the nature of the firms in the sample, a more likely source of this variation lies in the differences in national conditions, such as culture or industry infrastructure. Differences in the dimensions of national cultures may be responsible for the different results found between U.S. and Norwegian firms (Antoncic and Hisrich, 2001; Hofstede, 1983; Tiessen, 1997). Specifically, the masculinity-femininity dimension (i.e., masculinity represents an emphasis on materialism and decisiveness over service and intuition) and the individualism-collectivism dimension (i.e., individualism represents an emphasis on the self and the family over the group) described by Hofstede (1983) may influence managers’ attitudes towards environmental hostility. According to Hofstede (1983), Norwegian and U.S. managers are fairly similar on the uncertainty avoidance and power distance dimensions, which may influence issues related to dynamism and heterogeneity (Morris et al., 1994). Thus, if the relationships between the environment and culture dimensions hold, similar relationships between CI and environmental heterogeneity and dynamism are expected to be found in the two countries. This suggestion

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was supported by the finding as U.S. and Norwegian managers reacted similarly to environmental heterogeneity and dynamism. Hofstede (1983), however, reported that Norwegian and U.S. managers varied significantly on the masculinity-femininity and individualism-collectivism dimensions. The differences between Norwegian and U.S. managers on these two dimensions, therefore, may partially explain the different reactions to environmental hostility identified in the studies of managers from these two countries. Managers from cultures which score high on the masculinity and individualism ends of these dimensions, such as those from the U.S., may feel more challenged by hostile environments than those managers from cultures which score high on the femininity and collectivism ends of these dimensions, such as managers from Norway. This suggestion was supported by the results and bolster Giamartino et al. (1993) claim that models of U.S. entrepreneurship cannot always be generalized to include firms from other countries. The results also highlight the contribution of international experiences to the firm’s innovation activities (Zahra and Garvis, 2000). Our results emphasized the importance of exporting experiences to a large number of countries. According to these results, internationally active firms are more likely to introduce product and process innovations and rely upon incubative and acquisitive sources of innovation. Since innovations are often the cornerstone of a firm’s competitive advantage (Lengnick-Hall, 1992), these results suggest that firms which compete in the international markets are better positioned to gain access to competitive advantages via innovation by the virtue of their global experiences. Conversely, firms which desire to pursue exporting opportunities in multiple countries must focus on product and acquisitive innovation in order to accommodate local preferences. Internationalization, therefore, can provide immediate and long term benefits to the firm as international markets provide not only a current customer base, but also a source and a means of adopting future innovations. A third, more general contribution is made by this study. By making distinctions between the various types and sources of innovations, this study clearly showed that different environmental conditions and internationalization are uniquely associated with the different types and sources of innovation. For example, heterogeneity was positively and significantly associated with product innovation, but not with process innovation, while dynamism was positively and significantly related to product, organizational and acquisitive innovation, but not to incubative innovation. Export experiences were positively related to most aspects of innovation including process innovation. The primary managerial implication of this study concerns the relationship between internationalization and the firm’s CI activities. Managers must recognize that the development and adoption of innovations are significantly related to their firms’ international business activities. International markets should not be viewed as simply a source for new customers or a location for new production facilities. International markets, instead, should be viewed as potential source of corporate innovations. Increased global activities are positively associated with greater product, process, incubative and acquisitive innovations. Managers, therefore, are admonished to integrate their firms’ international strategy with the types and sources of innovation the firms pursue.

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Limitations and directions for future research As noted in the methodology section, the reader should be aware of several limitations of this study. This study only focused on the types and sources of innovation. Other dimensions of innovation, such as innovation planning or whether the firm concentrates on radical or incremental innovations, was not investigated and may deserve further attention. The firm’s environment and internationalization activities may dramatically affect other aspects of CI not included in this study. Also, the results from this study may not generalize to firms from other countries than Norway. The readers are also warned to consider the slight differences in this study and in prior studies when comparing these results. Finally, this study did not examine how the proposed relationships might impact performance. While increased international activities might spur CI, firm performance may not necessarily be improved (Zahra and Covin, 1995; Zahra et al, 2000). Future studies should examine the relationships between the environment, internationalization, corporate innovation and performance. Also, Rsquares are a little low, particularly for Imitative and Organizational Innovation, which raises questions as to whether the current results would hold if additional variables were added in order to improve model specification. Several future research questions are raised by this study. First, the relationship between a firm’s international experiences and its innovation activities needs further investigation. In particular, are certain international experiences, such as joint ventures, foreign R&D labs, or foreign production facilities associated with different aspects of innovation? What is the nature of the innovation advantage that accrues to the internationally experienced firm? This rich research area has only been examined in a cursory manner and more detailed investigations will increase our understanding of this seemingly important relationship. Second, models solely based on U.S. firms may inadequately represent the behavior of firms based in non-U.S. countries or those competing in the global marketplace. Established models based on North American theory and constructs may thus not be directly applicable and relevant in other settings (Boyacigiller and Adler 1991; Zahra et al, 1999). Other models of corporate innovation should be tested and verified using other non-U.S. samples and firms with different levels of international experiences. Cultural variables may also need to be included in future studies. Appendix Individual items for each aspect of corporate innovation are as follows: Innovation sources Incubative innovation items were: “To encourage individual initiative and creativity among employees,” “To emphasize internal development of new products,” “To create an internal organization culture that contributes to innovation,” and “To emphasize internal development of business ideas.”

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Acquisitive innovation items were: “To buy innovative companies in the industry,” “To buy innovative companies in related industries,” “To buy innovative products that are developed by other firms,” “To use licensing agreements to acquire new technology,” and “To acquire innovative technologies through joint ventures.” Imitative innovation items were: “To imitate products or technologies that are offered by competitors,” “To copy the successful business ideas of competitors,” “To copy the successful new products of competitors,” “To copy the successful business practices of competitors,” “To copy the strategies of competitors,” “To watch over the innovations of competitors and quickly imitate them,” and “To imitate the new products of competitors.” Innovation types Product innovation items were: “To develop new products,” “To introduce radically new products in the company’s existing markets,” “To offer improvements or modifications of existing products,” “To develop new products for fast (one to two years) market introduction,” “To develop new products for existing markets,” “To increase profitability through products that did not exist three years ago,” and “To provide new variants for existing product lines.” Process innovation items were: “To invest heavily in technology related R&D,” “To develop completely new technology,” “To develop new technology in the market,” “To be the first with technological improvements,” “To invest heavily in product related R&D,” and “To emphasize international development of new technology.” Organizational innovation items were: “To develop incentive systems for innovation,” “To train employees in creativity and innovation techniques,” “To develop new structures to encourage innovation in the company,” “To use programs for management development to enhance innovation,” “To use groups from various departments to develop new products,” “To develop procedures to develop innovation techniques,” “To appoint champions for innovations and new business ideas,” and “To establish procedures to enhance the ideas of employees for new business opportunities.”

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