Investment In Process Innovation Research Articles

Dynamic control of low-carbon efforts and process innovation considering knowledge accumulation under dual-carbon policies

Governments frequently implement carbon trading (CT) and carbon subsidy (CS) policies for encouraging enterprises to engage in low-carbon efforts (LCE) and reduce emissions, ultimately aiming for sustainable development in environmental and economic realms. In response, enterprises increase their investments in process innovation (PI) to balance revenue generation and cost reduction while simultaneously accumulating knowledge. Exploring the relation between LCE and PI is crucial to guide enterprises in effectively balancing these inputs, as well as to examine the role of government regulations on carbon emissions in motivating enterprises to enhance their efforts. This study proposes a dynamic optimal control model integrating PI and LCE within the dual-carbon policy framework, considering the effect of knowledge accumulation (KA). Moreover, it evaluates changes in inputs and benefits under profit-optimal and social welfare-optimal conditions. Finally, a comparative analysis is conducted using numerical simulation and emulation. The findings indicate complementary and substitution effects between the two inputs: the KA effect enhances input stability, and the impact of social incentives consistently outweighs that of monopoly incentives. Furthermore, CT and CS policies exhibit cross-impacts on enterprise returns and the two inputs.

Impact of Process Innovation and Facility Automation on Organizational Performance through Digital Transformation Capability

With the recent spread of the Fourth Industrial Revolution, organizations have become more interested in digital transformation to secure competitive advantage as an investment in process innovation and facility automation has been strengthened. In particular, companies are further enhancing existing labor productivity and accelerating efforts for the digital transformation of organizations through the innovation of processes and automation of facilities and equipment in factories. Based on the theory of dynamic capability, this study analyzed the relationship between process innovation, facility automation, and organization performance through the firm

Flexible versus committed and specific versus uniform: wholesale price contracting in a supply chain with downstream process innovation

AbstractIf buyers are asymmetric in terms of their operating costs, researchers and managers broadly agree that the supplier can optimize her/his own profit by offering the more efficient buyer a higher price. In this paper, we develop a game theoretical model to investigate the interaction between one supplier and two asymmetric buyers within a supply chain. We formulate buyers' operating costs as a function of their process innovation levels, which implies that they can reduce the unit operating cost via investments in process innovation in the long run. Our research demonstrates that the uniform wholesale price (UWP) is always preferred over the buyer‐specific wholesale price by the supplier because of the effect of innovation stimulation. The optimal timing of pricing is contingent on the level of market demand variance. If two buyers have the same ability to reduce their operating costs via process innovation, the UWP strategy forms a win‐win situation to the supplier and two buyers. Our results provide the supplier with suggestions regarding when to adopt the UWP strategy and how to enhance downstream innovation performance within the supply chain.

Investment in process innovation in supply chains with knowledge spillovers under innovation uncertainty

In this paper, we consider two supply chains each consisting of a manufacturer sells products to customers through an exclusive retailer to investigate the issue of whether the manufacturers with differentiated absorptive capacity will invest in uncertain process innovation under knowledge spillovers. To this end, we develop game-theoretic models with bilateral investment, unilateral investment, and no-investment. Analysis of the equilibrium outcomes shows that the manufacturers when confronted with weak (strong) spillovers will (not) invest. If a manufacturer’s knowledge seldom spills over while the opposite is true for the competitor, they behave as the unique investor and free-rider, respectively. If both of them are exposed to medium spillovers, there exist thresholds below which the investment strategies are asynchronous, and they are synchronous otherwise. Moreover, we reveal that: (i) bilateral investment may yield lose-lose, lose-win, win-lose, or win-win outcomes for the manufacturers; (ii) the manufacturer with weak absorptive capacity may invest even though it almost learns nothing from external knowledge; and (iii) if the success probability of innovation is high, the investment strategies hinge on the intensity of knowledge spillovers. Otherwise, the manufacturers generally have fewer incentives to invest. Finally, we extend the model to verify the robustness of the key findings in situations with cross-selling and channel integration, respectively, as well as shed some light on the effects of different supply chain structures on the manufacturers’ incentives to invest in uncertain process innovation.

Demographic structure, knowledge diffusion, and endogenous productivity growth

This paper considers how increasing longevity and declining birth rates affect market entry and endogenous productivity growth in a two-country model of industry location and trade. Firm-level investment in process innovation generates productivity growth, and with imperfect knowledge diffusion the larger country, measured by labor force size, has a greater share of relatively productive firms. In this framework, population aging reduces a country’s labor supply, share of industry, and relative productivity. If the smaller country experiences population aging, knowledge spillovers improve and the rate of productivity growth rises, as the level of market entry falls. Alternatively, population aging in the larger country weakens knowledge spillovers and lowers the rate of productivity growth, but has an ambiguous affect on market entry. A quantitative analysis of the framework based on population data for the United States and Western Europe is used to consider the welfare implications of demographic transition.

Import competition and industry location in a small‐country model of productivity growth

AbstractWe study how import competition affects the regional concentration of industry location in a small open economy with two regions. Industry concentration is linked with firm‐level investment in process innovation through an import competition effect that is increasing in the market share of imported goods and the productivity differential of domestic firms with the rest of the world. We show that increased import competition, through a larger number of imported goods or a faster international rate of productivity growth, leads to greater regional industry concentration by reducing domestic market entry and decreasing the relative productivity of domestic firms.

Demographic Structure, Knowledge Diffusion, and Endogenous Productivity Growth

This paper considers how increasing longevity and declining birth rates affect market entry and endogenous productivity growth in a two-country model of trade. In each country, the demographic transition to an older population induces a contraction in the labor force through a decline in the working-age population. Firm-level investment in process innovation generates productivity growth, and with imperfect knowledge diffusion the country with the larger labor force has a greater share of firms with higher productivity levels. In this framework, population aging reduces a country’s labor supply, share of industry, and relative productivity. If the country with the smaller labor force experiences population aging, knowledge spillovers improve and the rate of productivity growth rises, as the level of market entry falls. Alternatively, population aging in the country with the larger labor force weakens knowledge spillovers and lowers the rate of productivity growth, but has an ambiguous affect on market entry. We show that the effects of population aging may be reversed by extending retirement age, and consider the welfare implications for demographic transition and retirement age extension arising in our framework through a quantitative analysis based on population data for the United States and Western Europe.

Strategic incentives for complementary producers to innovate for efficiency and support sustainability

Process innovation that increases operational efficiency through a step change improvement in resource utilisation and waste reduction can help boost manufacturing profitability but also offer broader social and environmental benefits. Business owners, though, might be reluctant to make investments in process innovation unless they serve a pure profit motive. While not guided by altruistic intentions, the owners might nonetheless see a strategic benefit in providing their managers with remuneration incentives supported by public commitments to increase innovation effort for more efficient, lean and sustainable operations. We model such a possibility amongst producers controlling the supply of essential complementary components that go into the assembly of competitively produced composite finished goods. We demonstrate the ruinous effect of independent strategic delegation to managers of powerful complementary producers. Instead, collaboration amongst the owners of the complementary producers to establish common managerial incentives can increase innovative effort to raise efficiency that benefits the whole industry supply chain, end consumers, and social welfare. Government-backed voluntary agreements with sector-wide commitments may be helpful in encouraging process innovation to support lean supply chains and sustainability.

R&D and firm performance in the semiconductor industry

While the semiconductor industry is still dominated by large vertically integrated firms, fabless firms, which outsource their manufacturing, are gaining market share. Fabless firms are considered to have an advantage in product innovation, as they can focus their innovation efforts on chip design and can benefit from investments in process innovation made by their manufacturing partners. However, there is little empirical evidence of the performance of fabless firms compared to vertically integrated firms. This research empirically examines the relationship between R&D and the financial performance of fabless and vertically integrated firms from 2000 to 2010. Our results show that fabless firms maintain higher gross and net margins, earn a higher return on assets (ROA) and have greater intangible value (Tobin’s q) than vertically integrated firms when controlling for size, capital intensity and R&D ratio (R&D/sales). This supports the argument that fabless firms achieve greater performance by focusing on one part of the innovation process. The relationship of R&D ratio to net margin is negative for the whole sample, suggesting that the industry may be overinvesting in R&D. Notably, the negative relationship is greater for fabless firms, which spend a higher amount of their sales on R&D. The relationship of R&D ratio to ROA and Tobin’s q is negative, and there is no significant difference between fabless and integrated firms. We conclude that fabless firms outperform integrated firms overall, but are somewhat worse in terms of increasing profits and creating value from their R&D investments.

Economic Integration, Monopoly Power and Productivity Growth without Scale Effects

This paper considers how monopoly power affects the relationship between economic integration and economic growth that is not biased by a scale effect. In a two-country model of trade, productivity growth is generated by firm-level investment in process innovation, and the location of economic activity is determined by relative market size, trade costs and imperfect knowledge diffusion. Equilibrium features the partial concentration of manufacturing and the full concentration of innovation in the larger country. Increased economic integration raises the concentration of manufacturing in the larger country, and when monopoly power is strong, leads to decreased product variety, accelerated productivity growth and greater national welfare. With weak monopoly power, however, it raises product variety and dampens productivity growth, but may benefit or hurt welfare.

Patterns of technology, industry concentration, and productivity growth without scale effects

This paper investigates the relationship between geographic patterns of industry and economic growth in a two-country model of trade with no scale effect, where productivity growth is generated by firm investment in process innovation. We find that dispersed equilibria with industry located in both countries produce higher growth rates than concentrated equilibria with all industry located in one country. The highest growth rate arises for equal industry shares and no productivity gap, implying that industry concentration has a negative effect on overall growth. Convergence towards a dispersed equilibrium is contingent on transport costs and knowledge dispersion.

A unified framework for analysing price interdependence, innovative activity and exchange rate pass-through

This paper develops an international oligopoly model in which domestic and foreign firms simultaneously choose their price and innovation strategies under the assumption of non-zero conjectural variations in relation to their competitors’ price changes. The model captures the links between the exchange rate, foreign and domestic firms’ prices and investment in process innovation and provides a unified framework for analysing exchange rate pass-through.

Efficiency Trade-Offs in the Design of Competition Policy for the Telecommunications Industry

Trade-offs between imitation and innovation create natural tensions in the design of competition policy for the telecommunications industry. We explore the relationship between the prices of unbundled network elements (UNEs) and static/dynamic efficiency. We find that even when UNEs are priced to induce efficient make-or-buy decisions from a static perspective, mandatory unbundling reduces the incumbent's incentive to invest from a dynamic perspective. Moreover, while the literature focuses on disincentives for investment in innovation associated with low UNE prices, we find that raising prices for UNEs, when such prices preserve the efficient make-or-buy decision, can discourage investment in process innovation.

An Empirical Investigation of Process Innovation and Learning in Semiconductor Manufacturing: A Life-Cycle Perspective

In many high-tech industries, product technology is rapidly evolving and innovation in the manufacturing process is becoming an increasingly critical requisite for firms to sustain long-term competitiveness and profitability. Unfortunately, given that firms invest billions of dollars in process-related research and development each year, the topic has received little research attention in accounting literature. To fill the gap in extent research, this study develops a learning curve model and empirically investigates the impact of production experience and investment in process innovation on manufacturing costs using a unique dataset consisting of 10 years' worth of quarterly data on five successive process generations from one of the largest semiconductor manufacturing companies in Taiwan. I integrate life cycle considerations into the analysis and test if the impact of process innovation and production experience on cost reduction differs across the technology life cycle. The empirical results indicate that manufacturing cost is negatively associated with cumulative production volume and cumulative investment in process innovation, supporting that process innovation and production experience both are important value drivers in the semiconductor manufacturing industry. I also find that investment in process innovation has a greater impact on cost reduction in the early stage of a technology life cycle and production experience plays a more important role in the mature stage, providing new evidence on learning effects and the value of process innovation.

The impact of parallel imports on investments in cost-reducing research and development

We develop a two-country model of endogenous investment in process innovation by a manufacturer facing competition from parallel imports (PI). We find that the distortions associated with PI inhibit innovation. However, the difference between the manufacturer's expected profits under successful and failed innovation is U-shaped in the cost of engaging in PI. Thus, the reduction in R&D investment depends on both legality of PI and transport costs. The reduction in innovation could harm global welfare, depending on whether the manufacturer was deterring PI with a high wholesale price. If so, banning such trade would raise expected welfare.