Technological innovation strategy for competitive advantages of SMEs under innovation cluster policies

Abstract

In a rapidly changing global business environment, the importance of competitive advantage of a firm has been emphasized to survive the cut-throat competition and pioneer a new market. Most firms have made a lot of effort to create their competitive advantages through R&D and innovation activities. In addition, many governments have also introduced various innovation policies and R&D subsidy programs to promote a firm’s technological innovation. In particular, the importance of collaboration between universities, public research institutes and firms and the necessity of open innovation activities to utilize external knowledge and technologies have been recently highlighted in order to efficiently respond to rapid market changes. The government of Korea have continued to expand national R&D subsidy programs and have introduced innovation cluster policies that forster R&D special zones wherein innovative knowledge and technologies are efficiently created, transferred and diffused since 2005. On the one hand, a firm is required to secure valuable, unique, rare and inimitable resources for its business efficiently and establish technological innovation strategies effectively to achieve a firm’s goal using its resources. In addition, the role of government R&D subsidy system in a firm’s innovation process is critical. On the other hand, Technological innovation of SMEs is regarded as one of the most important factors for national competitiveness in science and technology, and the importance of technological innovation strategies of SMEs to develop their competitive advantages have been highlighted. In addition, recently the new characteristics of SMEs that have relatively less resources and experiences are noted that they are actively doing collaboration with external partners and participation in government R&D subsidy programs. However, there are few previous studies on technological innovation strategies of SMEs that have insufficient resources and experiences. Thus, the studies on SMEs’ strategies for technological innovation will be meaningful especially for SMEs in innovation clusters, SMEs as fast followers to catch up with advanced knowledge and technologies.This paper studies on technological innovation strategies of SMEs to develop their competitive advantages and improve their performance, especially located in Korea’s innovation clusters. It focuses on the effect of technological innovation strategies on SMEs’ performance from three different perspectives, such as a firm’s strategy perspective, an innovation policy perspective, and a firm’s resource perspective. This paper employs secondary data of SMEs located in Korea’s innovation clusters from ‘INNOPOLIS Statistical Survey’ by the Ministry of Science and ICT in Korea. The statistical analyses on this paper are carried out to verify our hypotheses about the relationship innovation strategies, open innovation activities, R&D resources and performance in SMEs. First study examines the effects of SMEs’ innovation strategies on the relationship between R&D subsidy and firm performance from a firm’s strategy perspective. It includes an analysis of different effects of innovation strategies in SMEs depending on the stage of a firm’s growth. The findings show that government R&D subsidy contributes to better firm performance in SMEs. In addition, SMEs’ absorptive capacity and patent portfolio have positive moderating effects in the relationship between R&D subsidy and performance, regardless of the stage of a firm’s growth. However, SMEs’ external network activities in the early stage reduce the effect of R&D subsidy on firm performance, while enhancing the effect during growth stage. Thus, differentiated strategies depending on the stage of a firm’s growth are required for SMEs to achieve better performance. To improve SMEs’ performance taking advantage of R&D subsidy programs, SMEs in the growth stage should try to strengthen their absorptive capacity and patent portfolio and enlarge external collaboration activities. However, SMEs in the early stage had better strengthen their absorptive capacity and secure patents but avoid dealing with excessive external partners. Second study examines the relationship between SMEs’ open innovation activities and innovation performance, and it includes an analysis of the role of R&D subsidy in the relationship from an innovation policy perspective. The findings show that SMEs’ absorptive capacity and external collaboration activities positively affect their performance, with stronger effects for SMEs in the mature stage. Moreover, a higher ratio of private R&D investment to R&D subsidy improve innovation performance, and the innovation performance also contribute to firm performance. Thus, open innovation activities are useful for SMEs in the higher stages of a firm’s growth to achieve better innovation performance and firm performance. In addition, government R&D subsidy programs need to be designed to facilitate private R&D investment and focused on SMEs with higher level of external collaboration and absorptive capacity. Third study shows how R&D resources improve firm performance, taking advantage of open innovation activities in SMEs from a firm’s resource perspective. It focuses on the mediating effect of R&D openness on the relationship between R&D resources and firm performance in SMEs. The findings show that R&D resources (technological, human, and financial resources) and R&D openness in SMEs positively affect firm performance. Meanwhile, fewer technological resources or more financial resources in SMEs can be a motivation for external R&D collaboration. In particular, only SMEs with more financial resources achieve better firm performance via a higher degree of external R&D collaboration. Thus, SMEs in innovation clusters need to develop and secure R&D resources in order to improve their performance. Besides, external collaboration is one of the most important determinants of better performance in order to overcome the difficulties in the lack of internal resources and experiences, but SMEs need to more invest in their R&D to take advantage of external collaboration. In conclusion, a variety of innovation activities and R&D resources in SMEs contribute to better innovation and firm performance, and government intervention can play an important role in these activities and resources. However, the effect of these activities and resources can be different depending on the stages of a firm’s growth, a firm’s innovation strategies and a firm’s internal resources. Therefore, optimal strategies and decision making on internal capabilities and external environment in SMEs are required to develop their competitive advantages and achieve better performance.