Product Innovation Strategy and Firm Performance: The Mediating Role of Novelty and Internationalization
Description
This study examines the relationship between product innovation strategy and firm performance, focusing on the mediating role of novelty of innovation and internationalization. This study attempts to answer the following questions: 1) Does the choice of product innovation strategy affect firm performance? 2) Do product novelty and internationalization of innovation mediate the effect of product innovation strategy on firm performance? To answer these questions, the study used data obtained from the obtained from the Uganda National Council for Science and Technology (UNCST) collected in 2015 for the four preceding years. The national innovation survey (NIS) is carried out periodically to measure changes in the key indicators of STI sector performance. The survey design was informed by international standard criteria laid out in the OECD Oslo Manual, the Community Innovation Surveys, and used the National Business Register as the master sampling frame. The sample was selected using stratified random sampling with simple random sampling within each stratum. The Survey collected information about product, process, organizational, and marketing innovations and other key variables during the four-year period 2011 to 2014 inclusive. The survey sampled 589 business establishments employing ten (10) or more persons from a total population of 6475 business enterprises during the reference period. Product innovation strategy was measured with four binary variables. Firms which reported introducing a product innovation during the four years preceding the survey were asked to indicate (0=No; 1=Yes) by whom the innovations were developed. That is; mainly by the enterprise (Make), the enterprise by adapting or modifying product innovations originally developed by other enterprises or institutions (Imitate), the enterprise together with other enterprises or institutions (Ally), and mainly by other enterprises or institutions (Buy). Firm performance is assessed through two key variables: growth in turnover from the sale of product innovations and growth in the number of employees. Internationalization is estimated by two variables –establishing new subsidiaries and participating in export activities. Product novelty is evaluated based on the firm's introduction of innovations that are new to the firm or new to the market. The study adopts the partial least squares SEM (PLS-SEM) modeling approach because the Uganda National Innovation Survey dataset does not directly lend itself to measuring the effect of innovation on firm performance. The results show that product innovation strategy directly affects firm performance. This relationship is magnified by the positive effect of the Buy innovation strategy on firm performance. The novelty of innovations mediates the relationship between the firm’s product innovation strategy and its performance.