The Impact of Cultural Context on Product Innovation and Firm Performance

Abstract

Product innovation in different cultural contexts has become more important in the increasingly globalized market, and it is essential to examine how cultural context affects the relationship between product innovation activities and firm performance in the global market. Based on the analysis on more than one thousand manufacturing companies that have been involved in innovative activities in China, this study compares the effects of product innovation strategies and institutional factors on firm performance for international joint ventures and domestic firms in China. The results show that supportive innovation policies, high-level of infrastructure, well-developed local talent market, and large R&D investment all positively affect a firm’s product innovation performance in China’s domestic companies, but a defender innovation strategy is negatively related to their innovation performance. When international joint ventures are considered, only R&D investments and the level of infrastructure are positively related to international joint ventures’ product innovation performance, in part due to high cultural context in China. Implications of the results are then discussed.