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The impact of local linkages, international linkages, and absorptive capacity on innovation for foreign firms operating in an emerging economy

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Abstract

This study analyzes the impact of local linkages, international linkages, and absorptive capacity on firm innovation for firms based in one emerging economy while operating in another emerging economy. Testing research hypotheses derived from the institutional and organizational learning perspectives on a sample of 102 Taiwanese manufacturing firms operating in China, we find that the impact of international linkages is greater than that of local linkages, while both local and international linkages have a positive impact on innovation. Further analysis confirms that absorptive capacity has a stronger moderating effect on the relationship between local linkages and innovation than it does on the relationship between international linkages and innovation.

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Notes

  1. Since the research on innovation has been conducted by scholars in different disciplines, the terms ‘innovativeness’ and ‘innovation’ have been used interchangeably (e.g., Bell 2005; Gao et al. 2008). However, innovation is universally perceived as exploring something new, which is a distinct creation of a firm (Gao et al. 2008); thus, we chose to use this term in the paper.

  2. $$ t = \frac{{b_{1} - b_{2} }}{{\sqrt {S_{b1}^{2} + S_{b2}^{2} } }}. $$

  3. To further explore the potential mediating effects of local and international linkages, a full structural-equation model was estimated with each scale item used as an indicator of its associated latent construct for absorptive capacity (an exogenous variable), local linkages, international linkages, and innovation (endogenous variables). As discussed above, export intensity, length of operation, firm size, and industry are operationalized with the use of a single scale item as a control variable. After the full model is tested, the overall fit index for the potential mediating model is \( \chi^{ 2}_{{\left( { 10 5} \right)}} \) = 199.72 (p < .00), GFI = 0.82, NFI = 0.81, and NNFI = 0.86. Absorptive capacity was positively related to local linkages (t value = 3.80, p < .01) and international linkages (t value = 2.65, p < .01). Local linkages (t value = 3.12, p < .01) and international linkages (t value = 5.65, p < .01) would likely facilitate innovation. Among the control variables, only industry was positively and significantly correlated with innovation (t value = 2.31, p < .05). Moreover, in order to test the “mediated paths” of local linkages and international linkages simultaneously, this study conducted two analyses. First, we adopted Garbarino and Johnson’s (1999) suggestion and compared the hypothesized mediating model with a rival model without the mediator. In the rival model, all exogenous variables (i.e., absorptive capacity, export intensity, length of operation, firm size, and industry) directly affected all of the endogenous variables (i.e., local linkages, international linkages, and innovation). We then compared their fit via several features (i.e., overall fit statistics and percentage of significant paths) to decide whether the mediating model was better or not. Our results showed that the mediating model did not fit the data better [for the mediating model: \( \chi^{ 2}_{{\left( { 10 5} \right)}} \) = 199.72 (p < .00), GFI = 0.82, NFI = 0.81, and NNFI = 0.86; for the non-mediating model: \( \chi^{ 2}_{{\left( {96} \right)}} \) = 179.08 (p < .00), GFI = 0.84, NFI = 0.83, and NNFI = 0.87], and a smaller percentage of the paths were significant in the mediating model versus the rival model (62.5 vs. 64.7 %). Accordingly, the mediating model with two mediating variables is not superior. Second, seeking additional evidence in support of the non-mediating role of local linkages and international linkages, another alternative model was also explored. We set absorptive capacity, local linkages and international linkages as the exogenous variables, and innovation as the only endogenous variable. These three exogenous variables had a direct effect on the outcome variable (innovation). The overall fit of the model shows a significant improvement [for the rival model: \( \chi^{ 2}_{{\left( {95} \right)}} \) = 178.61 (p < .00), GFI = 0.84, NFI = 0.83, and NNFI = 0.87], compared with the mediating model. We also have conducted the mediating model with only a single mediating variable; that is, local linkages and international linkages play a mediating role in two distinct mediating models. Following the aforementioned analyses, our results show that neither local linkages nor international linkages mediate the effects of absorptive capacity with respect to innovation. Taken altogether, the mediating model is rejected in favor of the non-mediating model.

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Authors and Affiliations

  1. Department of Insurance and Finance, National Taichung University of Science and Technology, 129, Sec. 3, San-Min Rd., Taichung, 40401, Taiwan, ROC

    Tsai-Ju Liao

  2. Department of Business Administration, College of Commerce, National Chengchi University, 64, Sec. 2, Chihnan Road, Taipei, 116, Taiwan, ROC

    Chwo-Ming Joseph Yu

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Liao, TJ., Yu, CM.J. The impact of local linkages, international linkages, and absorptive capacity on innovation for foreign firms operating in an emerging economy. J Technol Transf 38, 809–827 (2013). https://doi.org/10.1007/s10961-012-9265-8

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