Developing innovation capability: the case of Chinese automobile companies

Innovation contributes to the firm's competitive advantage, and it also provides the engine for long-term economic growth. As the emerging markets transition from a centrally planned to a market-based system, understanding and promoting innovation during this process is of vital importance as to create value and achieve sustainable development. Therefore, this thesis contributes to a vibrant conversation in social sciences on the topic of innovation, with a special focus on emerging markets. Given that the firm is the primary actor in determining the effectuation of innovation and technological change, I have focused on the innovation capability of Chinese automobile assembly companies. More specifically, this thesis investigates one central research question: what are the critical factors that influence the innovation capability of Chinese automobile companies and how (both independent and joint effect)?
This thesis builds on multiple theories in the field of innovation, strategic management and international business (i.e., resource-based view, behavioral theory, and institution-based view), and employs a mixed-methods approach with the collection and analysis of both qualitative and quantitative data. The qualitative approach involves intensive literature reviews, personal interviews, field observation, company reports and etc.; and quantitative data includes an industry-wide survey and archival data. A four-paper structure has been adopted to address the research question in both depth and scope. Being explorative in nature, Paper 1 explains the drivers and consequences of the innovation capability of Chinese automakers. Based on the resource-based view, five potential resources are examined regarding their independent effect on building innovation capability. Further considering the contingent value of organizational resources, ownership is studied as a boundary condition shaping the effect of resources on the firm’s innovation capability. Focusing on internal factors within the firm, Paper 2 investigates the interaction effect of innovation incentives and workplace relationships on absorptive capacity, one type of innovation capabilities that emphasizes the process of searching, assimilating and exploiting valuable external knowledge. Specifically, vertical and horizontal relationships in the workplace are demonstrated to affect the effect of innovation incentives on absorptive capability differently. Acknowledging knowledge as the most important resource in innovation, Paper 3 takes a structural approach towards knowledge search and absorption. It highlights two dimensions of external knowledge linkages, namely breadth and depth, and examines how the breadth and depth of knowledge linkages relate to innovation in the Chinese automobile sector. Shifting the attention to external factors, the last paper (Paper 4) stresses the impact of external institutions (i.e., the Chinese government) on firms and zooms in to study how one Chinese privately owned auto company (Geely) adapts and performs since its establishment in the early 2000s. The value of taking an integrated strategy that combines political, marketing and technological strategies is especially valuable in the Chinese institutional context with strong government resource dependence and policy uncertainty.
This thesis makes three major contributions to the existing literature. First, by focusing on the Chinese automobile assembly companies, it enhances the understanding of innovation in one of the biggest emerging markets, characterized by strong government intervention, complex knowledge networks, and the prospect of technology leapfrogging. Second, studying the innovation processes at the organizational level reveals the complex, dedicated nature of promoting innovation capability and performance. In particular, it speaks to the conceptual models and empirical findings on the contingent value of different kinds of resources, the asymmetric role of vertical and horizontal and relationships in organizations, and the depth and breadth of knowledge linkage. Third, it sheds light on the relationships between micro and macro-level phenomenon, especially the firm-industry-government interaction. These findings are potentially applicable for policy makers in other emerging markets where there is a strong need for innovation capability and economic growth.

Advisor: Banister, D