External knowledge modes and firm-level innovation performance.

What is it about?

This paper examines the significance of external knowledge sources as impacting factors on innovation by incorporating a variety of external sourcing strategies, the firm’s internal competencies and the industry attributes, into a unique analytical framework in predicting the innovative capabilities of firms in developing countries. The World Bank Enterprise and Innovation follow-up dataset for manufacturing, service and retail firms in 11 countries in sub-Saharan Africa is utilised to assess the degree to which firms utilize external sources of information (customers, competitors, consultants, new employees and workshops) in the implementation of product, process, marketing and organizational innovation. Sectoral and country-specific estimations are performed with IV binary treatment and Tobit models, respectively. The findings demonstrate that, although internal sources are essential, external sources of information are also necessary to attain the desired level of innovativeness. These findings confirm the open innovation literature in that firms that open their innovation process and utilise distinct knowledge sources have a superior capability to introduce innovations. The paper provides significant contributions to the literature. The paper uncovers three sources of external knowledge linking indirect players in the market that are not common in the literature (consultant, new employees and workshop). The study shows that the baggage of knowledge inherent in these three sources is indeed essential to the innovative capabilities of the firms. Second, the results also reveal that the essentiality of external sources of knowledge differs conditional on the type of innovation considered (product, process, marketing or organisational), dependent variable operationalisation, sectoral, methodical configurations, and country specifics. Third, the study contributes to the understanding of how firms in emerging economies develop competencies for innovativeness through the interplay of knowledge from both direct and indirect market players. The findings offer essential insights on how management could invest in the distinct, useful and preferred external sources to best foster a compelling introduction of any innovation. The study further provides robust and novel evidence of the role of new consultants, employees and workshops on firms’ propensityto innovate.

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Photo by Iñaki del Olmo on Unsplash

Photo by Iñaki del Olmo on Unsplash

Why is it important?

These findings have implications for our understanding of how innovation is produced and studied. They recommend the need to distinctly consider what form of external knowledge best fits the desired innovation at the focal firms. This complements other evidence that demonstrates that the effect of many factors could be at play in the ability of the firms to introduce a successful innovation. For example, internal sources are considered essential for the four innovations studied in this analysis. Note also that sectoral divergence with regards to the suitability of external knowledge is observed in our findings (see, Table A1). Our results confirm the importance of external sources of information, but they also highlight the relevance of internal sources, with regards to all the innovation types introduced by the firms. An open innovationapproach lets firms not only to obtain higher innovation perfor-mance but also to capture value (Chesbrough, 2003).Regarding policy recommendations, the findings from this analysis recommend that policies that encourage the links between firms and market and scientific sources of information must be stimulated since they positively affect innovation optimisation. These policies should consider that a diverse blend of sources of information is valuable to successful innovation introduction.Nevertheless, they should also consider the diverse nature andinfluence of the sources of information on the different innovation to attain the anticipated result. Interestingly, as a matter of interest, a separate estimation is performed accounting for the directeffect of these external knowledge sources on internal R&D (See, Table A2). The results are indeed compelling in that; all the knowl-edge sources are found to relate positively and significantly to theinternal knowledge build-up of the focal firms.

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