Multi-Level Advances in Innovation: Competition and Cooperation Among Chinese Enterprises

Abstract

Firms’ adaptive innovation processes are derived from their swift and flexible responses to environmental changes. Since firms exhibit heterogeneity in their ability to effectively anticipate market moves, some outperform others in developing appropriate innovation processes. Therefore, we posit that firms’ interpretations of a specific type of market information; that is, dynamic competitive landscapes may impact their innovation patterns. Specifically, firms’ innovative activities change their levels of similarity with rivals, thus affecting their competitive relationships. Such a consequence of innovation implies that firms’ understanding of competitive landscapes may be embedded in their innovative decisions for two reasons. First, fierce competition with their rivals, which stems from high similarity among firms, impedes their collaborative opportunities, and thus decreasing their sustainable growth. Hence, firms will strive to explore novel technologies or strategies to reduce their competitive intensities with rivals in this context. Namely, firms will follow innovation patterns that allow them to achieve prompt renewal of their features. Second, excessive cooperation inhibits firms’ rapid growth as it stops firms from obtaining sufficient value and results in failure to survive in changing environments. Due to differences leading to collaboration, firms will slow their exploration of innovations to lower their distinctions with rivals in such conditions. In summary, firms’ predictions of imbalance in competition and cooperation based on their interpretations of competitive landscapes will promote the development of different innovation processes. Subsequently, such strategies will help firms achieve their innovation objectives quickly by catching up with or staying ahead of their rivals. Since competitive relationships between the same pair of firms are likely to vary at different levels, such as the firm and industry levels, such a multi-level structure will also affect firms’ innovation processes. We conducted two experiments on Chinese enterprises and leveraged their empirical results to support our hypotheses. Our findings provide practical implications and possible directions for future research.