Business innovation modes in China’s firms: Technological swing and the value of social capital.

Abstract

This paper studies business innovation in China, a country that has become an economic power in recent years. The literature on innovation on “business innovation modes” has come to the forefront for its capacity to identify archetypical sets of business practices (bundles of internal and external drivers) that firms adopt to stimulate innovation. This is a strand that moves away from the analysis of the impact of individual factors (e.g. R&D, human capital) and instead identifies the impact of bundles of resources, capabilities and practices that firms and their entrepreneurs/teams apply to attain their competitiveness objectives. Specifically, these are the STI (Science and Technology-based Innovation) and DUI mode (Innovation based on Learning-by-Doing, by-Using and by-Interacting) or a combination of the two. Therefore, it is very important from a practical perspective as it provides a reliable framework where businesses can learn from relevant empirical findings and benefit from implementing appropriate policy measures. Based on panel data from Chinese provinces 2016-2023, we analyse first, the way firms use these innovation modes to impact on technological and non-technological innovation. These modes are effective, however, they focus on the technological side (product innovation). A further contribution of this study refers to the inclusion of social capital as a moderating factor for innovation, particularly for the DUI innovation mode that relies on effective interaction across the personnel and the supply chain. We find a significant impact in bonding social capital for process innovation when using the DUI mode.