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Sukesh R 15MBAP054 I year MBA Operations Management

INTERPLAY OF PRODUCT DEVELOPMENT STRATEGY, PRODUCT


INNOVATION PERFORMANCE AND KNOWLEDGE UTILIZATION
Sukesh R 15MBAP054 I year MBA
Abstract
Throughout a board set of industries, product development and innovation underlies the ability of
firms to sustain competitive advantages. These are among the essential processes for success, surviva l,
and renewal of organization, particularly for firms in either fasted-paced or competitive markets. This
paper aims to reveal the role of knowledge utilization in high product innovation performance, moderate
product innovation performance. This study examines the interplay of product development strategy
knowledge utilization, and product innovation performance in the context of Chinese subsidiaries of
multinational companies.
Keywords: knowledge utilization, product innovation performance, product development strategy,
Subsidiaries
Introduction
Throughout a board set of industries, innovation underlies the ability of firms to sustain
competitive advantages. Innovation is among the essential processes for success, survival, and renewal of
organization, particularly for firms in either fasted-paced or competitive markets. To catch up with their
counterparts in global competition, emerging market firms (EMFs) need to build their innovative
capabilities for new product development. Recent research has extensively examined how emerging
market firms (EMFs) have grown and become important players in world business.
Considering that innovation is increasingly important for generating productivity, growth, and
competitiveness in various industries EMFs need to enhance their technological capabilities which are far
behind that of developed market firms. In this regard multinational companies gain an advantage through
their globally distributed innovation networks and their ability to assimilate, generate, and integrate
knowledge worldwide. Subsidiaries increasingly play a role in both exploitatio n and exploration through
innovation. Drawing on internationalization and knowledge management perspectives, we extend
Mathews (2006) linkage- leverage- learning (LLL) framework and present an exploratory analysis of
how Chinese firms as an example of EMFs overcome their resource disadvantages and exploit
internationalization opportunities in facilitating their new product development (NPD). New products
include completely new products, new product lines, modifications, and derivatives. Knowledge
utilization by a subsidiary can be described in terms of the extent to which it uses knowledge from various
sources, such as suppliers, customers, competitors, outside research organizations and consulta nts,
universities, its parent firm, peer units, and so on, in its product development. knowledge utilization can
be regarded as distinctive intangible resources that can give rise to competitive advantage.
The product development strategy of this subsidiaries is categorised in three focuses such as
breakthrough focus, platform focus and incremental focus. Each focus reveals extent to which the
resources are allocated to projects. That implies the development level of new products such as high,
moderate or low in-terms of innovativeness. A breakthrough focus aims to develop new products and
processes, and this involves exploring new possibilities. This requires building up technology assets and
bridging marker demands and technological possibilities. The incremental focus involves minor modi-
fications to existing products that usually require only the extension of prior knowledge. Platform focus
emphasizes moderately innovative projects that require small changes in technology and processes but
greater integration of new product functions and features and the development of new manufactur ing
processes. Prior research results suggest that subsidiaries involved in R&D have gradually undertaken
greater roles in the overall innovation of multinational companies.

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Sukesh R 15MBAP054 I year MBA Operations Management

Interrelationships Among Product Development Strategy, Knowledge Utilization, and Product Innovation
Performance
In this study, we set out to explore these issues in the context of foreign subsidiaries in China. As
China moves toward a market economy, foreign companies' subsidiaries have increased their investme nts
in developing new products to meet consumer preferences. This paper studies the impact of the interpla y
of product development strategy and knowledge utilization on a subsidiary's product innovation per-
formance in china.
The product development strategic focuses with knowledge utilization and Product innovation
performance
A breakthrough focus aims to develop new products and processes, and this involves exploring
new possibilities. This requires building up technology assets and bridging marker demands and
technological possibilities. To be innovative, a subsidiary must search widely and deeply in its network
for knowledge to cope effectively with the uncertainty inherent in new product development. A
breakthrough focus should call for intensive knowledge utilization. In contrast, the incremental focus
involves minor modifications to existing products that usually require only the extension of prior
knowledge. There is relatively little need for processing entirely new knowledge and, accordingly, little
demand for a processing mechanism aimed at knowledge utilization. In a similar vein, a platform focus
emphasizes moderately innovative projects that require small changes in technology and processes but
greater integration of new product functions and features and the development of new manufactur ing
processes. This involves significant information-processing requirements but on a relatively smaller scale
than that of the breakthrough focus, because it involves a knowledge search that is shallower and narrower.
Therefore, a platform focus should call for a moderate level of subsidiary knowledge utilization.
A breakthrough focus aims to result in innovative products that are superior to those of
competitors. Success enables a subsidiary to reap economic rent, and thus better profitability and sales
results, from its new products. Furthermore, focusing on developing highly innovative products may foster
a spirit of innovation, which encourages learning. However, this focus also erects barriers in a subsidiar y
that hinder the success of new products. Inadequate technology, weak skills and knowledge, and customer
resistance to unfamiliar new products all must be overcome. A platform focus involves projects that
develop moderately innovative products, such as new product lines, new items in a product line, or
significant modifications to existing products. Such projects are less risky, usually require less resource
commitment, and have a shorter development cycle than breakthrough innovations. This facilitates the
search for new knowledge, as well as the integration and combination of existing knowledge. In particular,
subsidiaries enjoy special knowledge and innovation advantages in that they can obtain support from their

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Sukesh R 15MBAP054 I year MBA Operations Management

parents and leverage knowledge and competences from their global network. If we take all these factors
together, it is likely that developing moderately innovative products will reliably contribute to a
subsidiary's product innovation performance. Incremental projects often respond to specific customer
needs by adding more features or reducing costs. Such projects usually develop products that involve the
extension of prior knowledge and often are associated with low levels of resource commitment and risk
and short development cycles. A subsidiary can reap benefits from taking few risks and committing few
resources, but developing only less innovative products constrains its ability to search for and fully use
knowledge.
Hypothesis
H1: (a) The extent of a subsidiary's breakthrough focus is positively associated with its knowledge
utilization, (b) the extent of a subsidiary's platform focus is positively associated with its knowledge
utilization, and (c) the extent of a subsidiary's incremental focus is not significantly related to its
knowledge utilization.
H2: (a) The extent of a subsidiary's breakthrough focus has a U-shaped relationship to its product
innovation performance, |b) the extent of a subsidiary's platform focus has a positive relationship to its
product innovation performance, and (c) the extent of a subsidiary's incremental focus has a negative
relationship to its product innovation performance.
H3: Knowledge utilization mediates the relationship between (a) the extent of a breakthrough
focus and product innovation performance and (b) the extent of a platform focus and product innovatio n
performance.
Methodology
The data were collected from 103 Chinese subsidiaries of multinational companies. The data for
testing these hypotheses were collected from the R&D managers or staff in charge of product development
at wholly owned Chinese subsidiaries of multinational companies, primarily from the United States,
Japan, Europe, and South Korea. First, we developed a survey instrument in English and then a native
speaker translated a revised questionnaire into Chinese, and a bilingual native English speaker back-
translated it. Web based interview method is used. The company which were successfully contacted by
telephone and screened according to three criteria: (1) whether the company was a wholly owned
subsidiary, (2) whether it had annual sales of more than 5 million, and (3) whether it was R & D oriented
and had introduced at least two new products in China in the previous three years.
Measures
Product Development Strategy: We categorized a subsidiary's product development strategy on the
basis of its allocation of resources. The respondents were asked to evaluate the extent of resource
allocation to a total of seven categories on a five-point scale (1 = "none," and 5 = "extensive"), and we
then aggregated the data for each strategic focus. For the breakthrough focus, respondents were asked to
evaluate the extent of resource allocation to two types of projects that aimed to develop completely new
products that would cither open up a new market (e.g., nylon) or revolutionize an existing market (e.g. the
laser printer). For the platform focus, four categories were evaluated: products new to the company, a new
product line, new items, and significant improvements. For the incremental focus, one category of minor
product improvements was evaluated.
Knowledge Utilization: we considered three types of knowledge flows: technology, customer, and
competition knowledge. We deemed technology knowledge to encompass technological skills,
information, and know-how pertaining to product innovations, including manufacturing, engineer ing,
information systems, and product technology knowledge. Customer knowledge, Competition knowledge
are evaluated. Knowledge sources include suppliers, customers, competitors, consultants, commercia l

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Sukesh R 15MBAP054 I year MBA Operations Management

R&D centers, and universities (Faursen and Salter 2006), as well as the parent company and peer sub-
sidiaries of the same parent.
Product Innovation Performance: It measured management's perception of the market performance of
the subsidiary's new products.
Analysis & Results
Structural Equation Modeling Results & Structural Model with Standardized Path Coefficients

Direct Effects Standardized p-


Estimate Value

Breakthrough focus * product innovation performance -.37 <.01


Breakthrough squared > product innovation performance .30 <.01
Platform focus product innovation performance .26 <.05
Incrcmcnral focus * product innovation performance -.04 n.s.
Breakthrough focus + knowledge utilization .30 <.01
Platform focus + knowledge utilization .18 <.01
Incremental focus * knowledge utilization -.07 n.s.
Knowledge utilization + product innovation performance .28 <.05
Indirect Effects

Breakthrough focus -> product innovation performance through .09 <.05


knowledge utilization
Platform focus -> product innovation performance- through knowledge
.05 <.05
utilization
Incremental focus > product innovation performance through
knowledge utilization -.02 n.s.

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Sukesh R 15MBAP054 I year MBA Operations Management

Table shows the path coefficients and their corresponding p-values based on bias-corrected
methods. We found that all the independent variables except incremental focus were significantly related
to knowledge Utilization and product innovation performance. More specifically, both a breakthrough
focus ( = .30, p < .01) and a platform focus ( - .18, p < .05) showed a positive and significant relations hip
to knowledge utilization, whereas an incremental focus showed no significant relationship (p = -.07, n.s.).
These results support H1a-c.
Each product development focus shows a distinctive correlation with product innovation perform-
ance. H2a predicts a quadratic relationship (U shaped) between the extent of a breakthrough focus and
product innovation performance. The coefficient for a breakthrough focus was significant and negative
|( = -.37, p < .01) and that for breakthrough focus squared was significant and positive ( = .30, p < .01),
providing strong support for H2a. Noticeably, the results show that the squared term was significant and
positive after we accounted for the breakthrough focus itself. The coefficients (-.37 and .30) combined are
consistent with the zero-order correlation of -.02.4 The platform focus effect was positive and significa nt
( = .26, p < .05), and thus H2b is also supported. However, the effect related to incremental focus was
not significant with respect to product innovation performance ( = -.04, n.s.) and thus does not support
H2c. In addition, knowledge utilization showed a significant and positive direct relationship to product
innovation performance ( = .28, p < .05). Among the control variables, we found that export intensity (
= .47, p < .01) and subsidiary size (p = -.28, p < .01) were significantly related to knowledge utilizatio n;
only size (P = .24, p < .05) showed a significant relationship to product innovation performance.
It also reveals that the mediating effects of knowledge utilization. The path coefficients for all the
paths linking breakthrough focus, platform focus, knowledge utilization, and product innovatio n
performance were significant, indicating significant partial mediation effects. The indirect effects further
confirm the partial mediating effects. Both the breakthrough focus ( = .09, p < .05) and the platform
focus ( = .06, p < .05) showed significant indirect relationships to product innovation through knowledge
utilization, which also indicates partial mediation, in support of H3a-b.
Discussion
We found a U-shaped relationship between a breakthrough focus and product innovatio n
performance and a positive relationship between a platform focus and product innovation performance.
the findings imply that a subsidiary's resource allocation decisions in connection with its incrementa l,
platform, or breakthrough product development strategy differentially affect the way it uses knowledge
in its network sources and predict its subsequent product innovation performance. A platform focus is
associated with a positive product innovation performance, a breakthrough focus has a U-shaped rela-
tionship to product innovation performance, and an incremental focus shows no significant relations hip.
1 he more resources a subsidiary commit to highly and moderately innovative product development, the
more likely it is to use all the knowledge available lo it intensively. In turn, this improves the perceived
market success of its new products.
Conclusion
The findings largely confirm our propositions, except that an incremental focus does not show a
significant relationship to product innovation performance. These findings provide empirical evidence of
how resource allocation among different projects affects product innovation performance. In addition,
they suggest that knowledge utilization is a mechanism that could help the subsidiary realize the benefits
of developing highly and moderately innovative products. In future this study can be done with more
number of samples. The cultural issue of knowledge is not considered in this study, so this can be included
in future.

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