Search strategy, innovation and financial performance of firms in process industries

Abstract

The current literature has investigated the direct link between a firm's external search strategy and performance. However there are limited studies about the role of industry context, innovation type and knowledge sources on this link. Our research aims to examine the mediating role of product and process innovation in the external search strategy-financial performance link of firms within process industries, and understand the effect of public and private knowledge sources on their financial performance. Studying 102 Singapore firms in process industries and 158 in other manufacturing industries, our firm-level results supported all hypotheses. First, we empirically establish positive search depth-financial performance relationship in process firms but not in other manufacturing firms. Second, we found the relationship is mediated by process and product innovation processes. Third, we demonstrate that public (private) institutional knowledge source has a significant positive (negative) relation with the financial performance of process firms, while there is no significant impact of knowledge from private market and other sources on financial performance. With these findings, we have linked the erstwhile disparate discussions on innovation between innovation management and production management, as well as demonstrated process firms can adopt deep search strategy to improve financial performance through product and process innovation.