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STI-DUI innovation modes and firm performance in the Indian capital goods industry: Do small firms differ from large ones?

Abstract

Despite the importance of informal modes of learning and innovation for developing countries, there is little empirical evidence on their role in firm performance. This paper examines the effect of formal and informal learning modes followed by small and large firms on their overall performance in the capital goods industry. Following the wider literature on national innovation systems, we categorise the innovation modes as formal Science, Technology and Innovation (STI) and informal learning by Doing, Using and Interacting (DUI) mode. We observe that in the case of small firms the informal learning and experience-based innovation is related to improved performance, while the formal STI mode does not have any effect. On the other hand, for large firms, both STI and DUI innovation modes are positively related to their sales growth. Our results indicate that building certain DUI capabilities may act as a pre-condition to enhance the strength of science and technology-based innovation strategies.

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Fig. 1

Notes

  1. A traditional beef fry dish from Kerala (https://en.wikipedia.org/wiki/Kerala_beef_fry).

  2. Bearing in mind the importance of practice or experience-based innovation and “synthetic knowledge” creation within the DUI mode, we acknowledge the differences of the proxy variables on the extent to which they are interactive: while outsourcing is clearly interactive, our data does not tell us how interactive the training to employees or marketing expenses are. However, these variables are still good proxies for the generation of the synthetic kind of knowledge that DUI relies on.

  3. https://tradingeconomics.com/india/imports

  4. For more details, see http://mospi.nic.in/data. We deflate both micro and macro variables by 3-digit industry deflators.

  5. The products are classified based on internal classification by CMIE.

  6. The newly approved definition of micro, small and medium firms can be accessed at https://www.dcmsme.gov.in/meetings/finalAgenda_16th_NBMSME.pdf.

  7. Here, we use R&D and royalties intensities (measured in terms of their values over total sales) to show the distributional graphs.

  8. Ownership dummies include four categories, namely, private owned, foreign owned, joint owned, and public owned.

  9. The only exception is that, when market based learning is measured by marketing expenses (column 2 in Table 4), the variable is not significant in explaining profitability.

  10. The results are similar also with an OLS estimation.

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We thank two anonymous reviewers for their insightful comments.

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Appendix

Appendix

See Table 7.

Table 7 Cross-correlation table

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Mathew, N., Paily, G. STI-DUI innovation modes and firm performance in the Indian capital goods industry: Do small firms differ from large ones?. J Technol Transf 47, 435–458 (2022). https://doi.org/10.1007/s10961-021-09862-5

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Keywords

  • STI
  • DUI
  • Modes of innovation
  • Capabilities accumulation
  • Corporate performances
  • Indian capital goods industry

JEL Classfication

  • O32
  • O33
  • L20