The effects of forward and reverse engineering on firm innovation performance in the stages of technology catch-up: An empirical study of China

Abstract

Due to the lack of novel technology, most emerging economies are adopting a technology catch-up strategy by first imitating and then innovating, which leads to a complex but important interaction between technology imitation and indigenous R&D activity, both of which play important roles in the innovation production process of emerging economies. Accordingly, this study proposes a new analytical framework that takes into account both forward engineering, mainly characterized by R&D novelty, and reverse engineering, mainly characterized by technology imitation. Based on this framework, this study offers an in-depth analysis of Chinese high-tech firms. The empirical results show that reverse engineering positively interacts with forward engineering; Firms with input in reverse engineering have more innovation output and a greater level of innovation commercialization than firms without input in reverse engineering. Forward engineering has a greater direct contribution to innovation output and innovation commercialization than reverse engineering. By comparison, the reverse engineering functions on innovation output mainly through indirect effect, which intensifies the role of forward engineering by providing the knowledge base for novel R&D activity. However, the ethicality and legitimacy of intellectual property behind reverse engineering frequently lead to international prosecutions, which may be the main reason that reverse engineering has an insignificant effect in the overseas market. Our study indicates that governments should initiate technological policy for technology development, and firm managers should improve indigenous innovation capacity.