Moving from reverse engineering to disruptive innovation in emerging markets: The importance of knowledge creation

Abstract

Disruptive innovation is a powerful means of expanding and developing new markets and delivering new functionality, and serves as a viable innovation strategy for emerging market firms. Existing literature indicates that reverse engineering, as a common type of informal technological learning, is an important driver for firms to catch up and improve their innovation capabilities. However, the literature lacks an adequate explanation of how firms can move from reverse engineering to disruptive innovation. This study aims to develop a conceptual framework to investigate how reverse engineering influences disruptive innovation through knowledge creation, as well as the moderating effect of the institutional environment. Using a two-wave time-lagged study of 294 informants in 147 Chinese manufacturing firms, we find that reverse engineering has a positive impact on disruptive innovation, and that this relationship is fully mediated by knowledge creation. In addition, the institutional environment in emerging markets plays a dual role: government support strengthens the positive relationship between reverse engineering and knowledge creation, while dysfunctional competition weakens it. These findings provide a micro-level perspective on how latecomer firms in emerging markets can achieve technological catch-up through reverse engineering-based technological learning practices, implying that firms can only move from reverse engineering to disruptive innovation through a knowledge creation process.