The effects of innovation sources and capabilities on product competitiveness in Hong Kong and the Pearl River Delta

It is widely recognized in the theoretical literature that firms need to use both internal andexternal sources of innovation to gain a competitive advantage. However, although it isassumed that internal and external sources of innovation have distinct relationships withfirm capabilities, it is not clear how various innovation sources affect such capabilities, orhow or to what extent such relationships affect product competitiveness. This paperexamines the effect of diverse sources of innovation on a firm’s technological innovationcapabilities and the extent to which such capabilities mediate the improvement of productcompetitiveness. Based on a survey of 200 manufacturing firms in Hong Kong and the PearlRiver Delta region, we identify internal departments as a major source of innovation forimproving a range of firm capabilities. Acquiring disembodied technology improveslearning, resource allocation and organizing capabilities, whereas acquiring embodiedtechnology enhances learning and manufacturing capabilities. We use a hierarchicalregression analysis to demonstrate that some sources of innovation, such as internaldepartments, can lead directly to superior product competitiveness, whereas innovationsacquired through conferences and competitors contribute to competitiveness through themediation effects of resource allocation, marketing and organizing capabilities.