Technological Entrepreneurship and Absorptive Capacity in Guangdong Technology Firms.

Transcription

1 Technological Entrepreneurship and Absorptive Capacity in Guangdong Technology Firms. Abstract. Purpose Technological entrepreneurship concerns the transformation of potentially viable technological opportunities into successful businesses. Absorptive capacity is argued to be essential for this transformation, since it can facilitate the prediction of new technology trends and the assimilation and application of new knowledge to produce new commercial outputs. The investigation of the relationships between absorptive capacity, technological entrepreneurship and their impact on Guangdong technology firms performance is the purpose of this study. Design/Methodology/Approach In this aim a positive causal chain from absorptive capacity to technological entrepreneurship and from this latter to performance is tested through a mediation analysis, which uses an ordinary least squares regression-based path analytical framework for estimating indirect effects on a sample of 113 Guangdong technology-based firms. Findings Findings are consistent with the hypothesis that greater absorptive capacity leads to greater technological entrepreneurship, which in turn leads to greater performance. Therefore evidence is provided about both the mediating role of technological entrepreneurship both the role of absorptive capacity as its antecedent in relation to Guangdong-based technology firms performance. Originality/Value A relevant but somewhat neglected relationship is examined using an integrative model in the Guangdong context. Moreover the study uses direct measures of absorptive capacity as a capability and provide a firm-level operationalization of technological entrepreneurship. In so doing it also adopts state-of-the-art analysis techniques and highlights the relevance of investments in soft factors for Guangdong technology firms path towards excellence. Keywords. Technological Entrepreneurship, Absorptive Capacity, Technology Firms, Guangdong, Performance, Competitiveness. Article Classification. Research Paper 1. Introduction Technological entrepreneurship has been characterized as a system (e.g., Abetti, 1992 ), a strategy (e.g., Gans and Stern, 2003 ), a process (e.g., Shane and Venkataraman, 2003 ), a capability (e.g., Hindle and Yencken, 2004 ) or an individual attribute (e.g., Dorf et al., 2011) related with the discovery/recognition/creation of technological opportunities and their exploitation. Relying on Casson (1982), Kirzner (1979), Shane and Venkataraman (2000) and Venkataraman and Sarasvathy (2001), technological opportunities can be defined as the possibilities to create new products, introduce these products into the market and sell them at greater than their cost of production. These possibilities originate from the divergence of beliefs about the future value of new or existing (but previously unexploited) technologies, with respect to one or more specific uses. When this happens in the context of a new organization or entity, it is referred to as independent technological entrepreneurship; when it happens in the context of an established organization or entity, it is referred to as corporate technological entrepreneurship. In any case wherever it happens and whatever the newness or sophistication of technologies it entails, technological entrepreneurship is about two things: 1) having or gaining superior insights about the future value of technologies and 2) creating new resources combinations to bring selected technologies to the market in the form of new products.

2 For both things absorptive capacity, that is firm s ability to value new, external knowledge as well as to assimilate and apply it to commercial ends (Cohen and Levinthal, 1990) is essential. Absorptive capacity is argued to facilitate technological opportunities identification as it allows the firm to recognize and understand potentially valuable knowledge outside the firm and to more accurately predict technological trends (Cohen and Levinthal, 1994). It may also facilitates technological opportunities exploitation as it allows the assimilation of external knowledge by combining it with existing knowledge, and to use this new knowledge by incorporating it into its operation to produce new commercial outputs (goods or services) as well as systems, processes, further knowledge or new organizational forms (Zahra and George, 2002; Lane et al., 2006). This second characteristic is a consequence of its nature of meta/dynamic capability (Zahra and George, 2002) that allows for the necessary creation of new resources combinations. In the Chinese context both technology-based entrepreneurship both absorptive are believed to be the pillars of Chinese firm s innovation potential and catch-up (OECD, 2008). As a matter of fact since the issuing of the Medium Long-Term Science and Technology Plan , technology has been at the heart of China s transformation into an innovation-oriented nation and a key driver of China s new growth model based on domestic, business sector-led innovation. Technological entrepreneurship provides the necessary trait d union between technologies, innovations and markets. Moreover, because of its emphasis on matching rather than on novelty and sophistication (Hindle and Yencken, 2004), technological entrepreneurship is also a better perspective to catch, and represent Chinese firms market-oriented (Liu, 2008) and secondary business model (Wu et al., 2010) innovation practices. On the other hand the need to increase Chinese firms absorptive capacity has been often cited in official speeches, reports (e.g. OECD, 2008) and literature (e.g. Liu 2008; Dobson and Safarian, 2008; Xie and White, 2006; Chen and Yuan, 2007) as a means to support the Country s innovation efforts, as it is supposed to increase the effectiveness of technology transfer (Chen and Yuan, 2007; Li et al., 2010; Xie and White, 2006) and the development of innovation capabilities (Li et al., 2010; Yang et al., 2006). However with the exception of some preliminary studies undertaken in Guangdong Province (e.g. Petti and Zhang, 2011a), the specific relationship between technological entrepreneurship and absorptive capacity has yet to be examined, especially with regards to their effects on firm performance. The study of these relationships is the main focus of this paper. More specifically following above-mentioned considerations and the preliminary evidence of a positive relationship between absorptive capacity and technological entrepreneurship found in the study cited and between absorptive capacity and performance found in (Wu and Liu, 2009) and (Petti and Zhang, 2001b), the purpose of this paper is to investigate an integrative mediation model of the effects of absorptive capacity on firm s performance through technological entrepreneurship in the context of Guangdong technology firms. Whether a sequential relationship between absorptive capacity and technological entrepreneurship exists, and if so, what effects produces on Guangdong technology firm s performance is the main research question. In order to answer this question a mediated regression analysis has been applied to data collected through interviews to 113 Guangdong technology firms. As a matter of facts, Guangdong Province is not only an icon of the Chinese unique industrial development (Barbieri et al., 2011) but also a crucial player in China s innovation efforts (Di Tommaso et al., 2012). Actually it homes a fifth of Chinese high-technology firms, generates more than a half of the Country s invention patents, produces more than a quarter of the new high-tech products sales and a third of both the whole exports and development development expenditures of these products. Therefore, with 5,603 hightech firms, among which the well-known Huawei, Tencent and ZTE; 30,864 total patents applications (of which 19,006 invention); RMB 357 billion worth of sales from new products, RMB 150 billion of exports value of these products and a RMB 35 billion expenditure in new product development (China Statistics Yearbook on High-Technology Industry, 2010), there is no other place in China where technological entrepreneurship is more evident than in Guangdong.

3 Accordingly, the remainder of this paper is organized as follows. Section 2 reports a brief review of the literature absorptive capacity, technological entrepreneurship, their relationships and their effects on firm s performance. Section 3 and 4 report the empirical study made with specific reference to the underlying theoretical framework, data collection, measures and analysis techniques used, findings obtained and discussion. In Section 5 concluding remarks highlight, along with the contributions and limitations of the study made, possible developments for further research. 2. Technological entrepreneurship and absorptive capacity in literature The different characterizations of technological entrepreneurship in literature mentioned at the beginning of this work, mirror the different perspectives from which the topic has been tackled. Technological entrepreneurship research is in fact an inherently interdisciplinary and multi-level field of enquiry (Phan and Foo, 2004), aimed at studying the conditions and drivers that lead to the identification and exploitation of technological opportunities. Positioned at the interface between entrepreneurship, technological innovation and strategy (Shane and Venkataraman, 2003), technological entrepreneurship adds an encompassing opportunity-seeking perspective to the technical and commercial concerns typical of technological innovation and strategy. Accordingly, the emphasis of studies varies from the recognition, creation and discovery of technological opportunities in entrepreneurship research, to the development and commercialization of new products in technology and innovation management research, through the effects of capabilities, network configurations and institutions on technology firms performance and competitive advantage in strategic management and related social capital/networks and institution-based perspectives. In this rich research domain a number of factors have been identified to influence technological entrepreneurship, among which knowledge (Hindle and Yencken, 2004), absorptive capacity and knowledge management (Petti and Zhang, 2011a,b), all with a positive sign. As a matter of facts all are expression of firm s dynamic capability supposed to facilitate the identification and the successful exploitation of technological opportunities. Therefore absorptive capacity it is here argued to be a relevant antecedent and determinant of (independent and corporate) technological entrepreneurship. Moreover, referred by Cohen and Levinthal (1989) as learning capacity, absorptive capacity has emerged over the past two decades as a critical element for firm s long-term survival and success (Lane et al. 2006). Its original conception comes from the seminal works of Cohen and Levinthal (1989, 1990, 1994), who put research and development at the centre of firm s innovative processes (Volberda et al., 2010). Lane et al. (2006, p. 839) summarized the view that emerged and informed subsequent literature as follows: Through its R&D activities, a firm develops organizational knowledge about certain areas of science and technology and how those areas relate to the firm s products and markets (ability to identify and value external knowledge; Cohen & Levinthal, 1989). Over time, the firm develops processes, policies, and procedures that facilitate sharing that knowledge internally (ability to assimilate external knowledge; Cohen & Levinthal, 1990). The firm also becomes skilled at using that knowledge to forecast technological trends, create products and markets, and manoeuvre strategically (ability to commercially utilize external knowledge; Cohen & Levinthal, 1990, 1994). Together, these processes define a firm s absorptive capacity: the ability to identify and value external knowledge, assimilate it, and commercially apply it. Since then, though the concept underwent different adjustments (Cohen and Levinthal, 1990, 1994) and reconceptualization (Zahra and George, 2002; Nemanich, 2005; Lane et al., 2006), it remained bounded to its native R&D context. As a consequence, despite the strong arguments made about its associations with firm s commercial outputs, most of the empirical research on absorptive capacity has generally focused on innovation-related performance. In addition notwithstanding the mounting criticism on the appropriateness and validity of R&D-related proxies as compared to direct

4 measures of absorptive capacity taken outside the R&D domain (Lane et al., 2006), R&D measures such as R&D intensity, patents and publication-related measures remained the most used in empirical studies. As a matter of fact we found few cases in which the relationship between absorptive capacity and overall firm performance has been studied (George et al., 2001; Lane et al., 2001; Tsai, 2001; Jolly and Thérin, 2007; Watts, 2008). Even less are the studies that used measured outside the R&D domain, such as compensation policies and dominant logic (Lane and Lubatkin, 1998), knowledge sharing routines (Meeus et al., 2001), motivation and competencies (Lane et al., 2001; Szulanski, 1996). Among the above mentioned studies only Jolly and Thérin (2007) ventured out R&D for some of the items of their operationalization of potential absorptive capacity. The same is for the Chinese context where absorptive capacity has been specifically studied almost exclusively in relation to innovation, using mainly R&D-related measures to ascertain the relationships with innovation performance (Chen and Yuan, 2007; Gao et al., 2008; Liu et al., 2011; Wang and Han, 2011) and product innovation (Kotabe et al., 2011; Li et al., 2010). The only exceptions found are the studies of Deng (2010), who studied absorptive capacity as related to mergers & acquisitions performance, Wu and Liu (2009) and Petti and Zhang (2011b), who studied the relationships between absorptive capacity and firm s performance, all providing evidence of positive associations and effects. As regards to the study of the specific relationship between technological entrepreneurship, absorptive capacity and performance, none of the previous studies surveyed attempted to investigate the three variables simultaneously using an integrated model, and none of them with specific reference to Guangdong Province. This is the objective of the present work, which hypothesize and test for a sequential relationship, through a mediation model between absorptive capacity, technological entrepreneurship and firm s performance on data collected through interviews to 113 Guangdong technology firms. 3. The empirical study: Conceptual framework and method Conceptual framework The conceptual framework for the empirical study is depicted in figure 1 below. More specifically it depicts an hypothesized positive causal chain from absorptive capacity to technological entrepreneurship and from technological entrepreneurship to performance, in which, provided it is significantly different from 0, technological entrepreneurship plays a mediating role between absorptive capacity and performance. This because absorptive capacity may facilitate the identification and exploitation of technological opportunities, since it is supposed to allow the firm to track external changes, to identify external business opportunities, to integrate diverse knowledge for product innovation and development, to have a greater flexibility in reconfiguring resource bases, as well as lower costs and effective timing in capability deployment (Zahra and George, 2002). In turn, such an enhanced ability to identify and exploit technological opportunities is supposed to affect positively the performance of Guangdong technology firms. It may provide in fact competitive edge over competitors in terms of superior capabilities to identify and value promising technologies for theirs markets and needs, and to use these technologies for the development of new or improved products that can be successfully commercialized. Figure 1. The conceptual framework

5 Data collection Data were collected from 113 structured interviews with the help of a questionnaire. Interviews were carried out in Guangdong Province between November 2010 and November 2011 in two following rounds of collection at the 12 th and 13 th China High-Tech Fair in Shenzhen. Theoretical sampling (Eisenhardt, 1989) was used to identify the firms to be interviewed. The main objective was to gain an overview of different typologies of Guangdong technology firms active in diverse sectors. More specifically, we were interested in firms operating in high-technology sectors, producing or using information, microelectronics or new material technologies. The questionnaire was pre-tested through preliminary interviews with 26 entrepreneurs enrolled at the Sun Yat-sen University Business School s Business Development Program. The collection of interviewee business cards at the end of the interview ensure no duplication of interviews between the two rounds of collection. The final sample is depicted in figure 2 below. Figure 2. Study Sample Measures With the exception of the dependent variable, all the measures used were purposefully defined for this study. The reasons lay both on the need to take into account the characteristics of the context of this study, both on the need to have specific and explanatory measures of the phenomena at hand. As regards to the first reason, previous studies in the Chinese context and preliminary case studies and analysis made by the authors in Guangdong highlighted a generalized low R&D spending, a soft and human-oriented view of knowledge-related processes, and different perspectives concerning the meaning of new product. As regard to the second reason, a firm-level operationalization of technological entrepreneurship was not found in surveyed literature. In addition, the mounting criticism about the appropriateness of R&D intensity, patents and in general R&D-related proxies as measures of absorptive capacity (e.g. Lane and Lubatkin, 1998; Lane et al., 2006) lead us to build for more direct measures of absorptive capacity outside the R&D domain. Therefore, relying on previous attempts and in particular to the operationalization of absorptive capacity as competences and motivation (Lane et al., 2001; Szulanski, 1996) we measured absorptive capacity aggregating items on whether employees received training as well as encouragement for taking initiative and decisions, personal commitment, knowledge sharing and open communication, teamwork and cooperation. The factorability of the scale items within one factor was verified through Principal Component Analysis using SPSS version 20. The KMO value of.80 exceeds Kaiser s (1970) recommended value of.6 and the Bartlett s (1954) Test of Sphericity was highly significant with p<.001. Therefore a one factor solution, which explained 40.5% of variance, was supported by an eigenvalue exceeding at 4.457, a clear break in the screeplot after the first component, and the quite strong load of all items on the component (from.592 of the lowest one to.860 of the highest). A Cronbach s alpha of.88, support the reliability of the scale. Technological entrepreneurship was measured, owing some insights to the works of Lee et al.

6 (2001) and Andrew et al. (2010), according to three components: an entrepreneurial component made by the number of new to the market and new to the world product development projects, an innovation component made by the number of new or significantly improved products developed and the number of invention patents incorporated into these products, and a commercialization component, made by the number of new products introduced into the market, all with reference to the previous three years. The factorability of the five items within one factor was supported by the Principal Component Analysis, with a KMO value of.639 and an highly significant Bartlett s Test of Sphericity with p<.001. Factorability in one factor, accounting for the 57.6% of the variance, was supported with an eigenvalue at 3.455, a clear break in the screeplot after the first component, and the quite strong load of all items on the component (from.478 of the lowest one to.912 of the highest). Finally, performance was measured as the 2008 and 2009 percentage of revenue growth in order to ensure comparability between the two rounds of collection. A five points scale relying on Wang and Zhang (2009) was used to help respondent select in a range from less than 1% to more than 20%. Revenues are believed to be a more unbiased measure of performance, especially in the Chinese context, where revenues growth is often used as a measure of performance. Moreover overall revenue growth has been found to be one of the most used measure of firm s success at innovation by a BCG survey (see Andrews et al., 2010). Data Analysis In order to test the conceptual framework and respond to the study s research question a mediation analysis was performed following Preacher and Hayes (2004, 2008) bootstrapping procedure. Bootstrapping is more powerful than causal steps approach (Fritz and MacKinnon, 2007) and more flexible than Sobel s test since it does not require the assumption of normality of sample distribution (Hayes, 2009). In addition it does not require the investigator to think about the statistical significance of each path in the causal sequence that define the indirect effect (Hayes et al., 2010) but just to base his inferences on an explicit quantification of the indirect effect itself, (Hayes, 2012). For this purpose we used Hayes (2012) PROCESS, a computational tool that uses an ordinary least squares regression-based path analytical framework for estimating direct and indirect effects in a number of mediation, moderation and combined moderation and mediation models, including the simple mediation model elicited in the conceptual framework of this study. Using this tool on SPSS v20, performance was entered as the outcome variable, absorptive capacity as the independent variable and technological entrepreneurship as the mediator bootstrap samples were used to estimate a 95% bootstrap confidence interval for the indirect effect. Two models were run, the first as above-mentioned, and the second one to prove the mediation effect found controlling for the effects age and size. The results of these analysis are reported in the next section. 5. The empirical study: Results and Discussion Results Mediation analysis results of both models support the study s underlying hypothesis of a mediating role of technological entrepreneurship and the directions of the paths from absorptive capacity to technological entrepreneurship and from this latter to performance are consistent with the interpretation that greater absorptive capacity leads to greater technological entrepreneurship, which in turn leads to greater performance of Guangdong-based technology firms. Therefore evidence is provided about the existence of a sequential relationship between absorptive capacity and technological entrepreneurship as regards to Guangdong s technology firms performance. More in detail in the first model run the indirect effect of absorptive capacity on performance through technological entrepreneurship is positive (0.1920) and statistically different form 0, as shown by a 95% bias-corrected bootstrap confidence interval entirely above 0, that is to

7 The second model run, in which the effects of age and size on the mediation are controlled, corroborates the results obtained. In fact the indirect effect of absorptive capacity on performance through technological entrepreneurship was just slightly lower (0.1625) and remained statistically different form 0 (with a 95% bias-corrected bootstrap confidence interval from to ). Furthermore the controls proved not to be statistically significant in both paths, though the effect of size proved to be very high in the path from absorptive capacity to technological entrepreneurship. As a consequence both age and size seem not to have any relevant effect on the proved mediating role of technological entrepreneurship. Therefore, two cases differing by a unit of absorptive capacity differ 0,1920 (or if we want to refer to the second model) as a result of the effect of absorptive capacity on technological entrepreneurship, which in turn affects firm s performance. As regards to the specific effect of technological entrepreneurship, a Preacher and Kelley (2011) Kappa-squared of significantly different from 0 (bootstrap confidence interval from to ), indicates that 10.6% of the total effect of absorptive capacity on performance of Guangdong technology firms was due explicitly to technological entrepreneurship. That is a medium effect size according to Preacher and Kelley (2011, p. 107). Discussion These results provide three, though very preliminary, implications of for Guangdong technology firms and their way to excellence. First, technological entrepreneurship in Guangdong technology based firms benefits from absorptive capacity, especially when it is conceived and operationalized as a capability rather than just with proxies of knowledge content such as R&D intensity and patents. This in turn is reflected on the performance of these firms in terms of revenues growth. This is not surprising since absorptive capacity is argued to help the speed, frequency and magnitude of innovation-related activities and in particular incremental innovations, of the kind practised in Chinese firms, because such innovations draw primarily on the enterprises existing knowledge base (Anderson and Tushman, 1990; Helfat, 1997; Kim and Kogut, 1996). Therefore it reasonable to assume that those Guangdong technology firms that exhibit or build an enhanced soft capability to value, assimilate and apply new external knowledge are advantaged in the identification and the exploitation of opportunities offered by technologies to conceive, develop and commercialize new products. This in fact requires an attitude towards learning, risk-taking and innovation that employees training, personal commitment, knowledge sharing, cooperation and initiative are much likely to provide than mere R&D investments or patents applications. The first in fact are destined to a number of uses other than the acquisition know-how (see for example Guan et al., 2006). The second is rather a result and a proof of the productive application of knowledge and capabilities of trained and motivated personnel. As a further evidence, preceding case studies undertaken in Guangdong Province support the primary relevance of how knowledge is managed for surveyed firms technological entrepreneurship and competitiveness. Moreover, far from being characterized as a process, knowledge management was associated to a set of mechanisms enabling the management of people, knowledge transfer and the socialization of the company s culture and values. Therefore tracing the same picture of a soft, human oriented and non R&D and procedure-based conception of absorptive capacity. Indeed this fits well with Chinese business culture which conceives people and their relationships at the centre of work and consequently assign higher relative weights to harmonic relationships as compared to the achievement of tasks and objectives. Second, looking from another perspective, technological entrepreneurship proved to be a significant milestone in making worthwhile Guangdong technology firms knowledge-related investments. Actually new products and their successful commercialization are not only a reason and an highway to enhance the competitiveness of these firms, but also a fundamental target and benchmark for the allocation and assessment of their knowledge-related investments. Without this use in mind, these investments can easily turn into costs, as it can be argued by the negative sign of total and direct effects of absorptive capacity on performance in the two models run. Therefore Guangdong

8 technology firms efforts to train and motivate their employees should be specifically oriented towards making them able to conceive, develop and commercialize new products. Otherwise they may end up with the undesired effect of decreasing their revenues potential instead of increasing it. Third, the study offers a compelling rationale to increase technology-based entrepreneurship, absorptive capacity, and spending focus on soft factors and non-s&t skills as suggested in a policy review made by OCED in These elements are not only pre-requisites towards the creation of new, original knowledge but also and mainly the way to increase competitiveness in the short run, both in Guangdong technology firms high-end domestic and international markets, where they are more exposed to the competition with external actors on innovation (Di Tommaso et al., 2012). This does not mean that hard R&D investments and patenting are not important. It rather means that these are not sufficient for increasing Guangdong technology firms competitiveness, especially if the most part of R&D budget is spent in acquisition of foreign technology and equipment (see for example Chen and Yuan, 2006; Guan et al., 2006) and patenting of design and utility models. Rather they need to be dedicated as much to the development of qualified human resources to be employed and motivated in new product development projects that make uses of new and existing technologies to produce new products that are useful and valued by the market. In the long run an enhanced absorptive capacity coupled with technological entrepreneurship is what may well lead to the development of self-owned innovation capabilities that will allow a greater number of Guangdong technology firms to compete both in high-end domestic sector and international markets on an even footing with foreign counterparts. 6. Concluding remarks In this work we tested an integrative mediation model of the effects of absorptive capacity on firm s performance through technological entrepreneurship in the Guangdong context. Findings support, probably for the first time, the existence of a sequential relationship between absorptive capacity and technological entrepreneurship and firm s performance, with specific reference to Guangdong technology firms. A direct measure of absorptive capacity as a capability engrained in employees competences and motivation, as well as a firm-level operationalization of technological entrepreneurship adapted to the Chinese context have also been provided. Implications for increasing investments in soft factors, with a focus on developing and commercializing more significantly new products have been drawn. However the theoretical construction of the sample and its limited dimension raise challenges to the generalizability of these results to the whole population of Guangdong technology firms. Moreover, since the newness of most of the operationalizations used, concerns may raise on whether the same results hold with alternative measures. Finally, provided the results still hold, one might want to ascertain whether the implication drawn might be extended to other Provinces and even outside China, for example in other emerging economies. In order to overcome these limitations, interested researchers might want to test the conceptual model and check the findings obtained conducting similar studies on a greater random sample of Guangdong technology based firms. In addition they might want to use alternative measures of absorptive capacity, introducing for example R&D-related operationalization or reflecting on the blurred boundaries between absorptive capacity, knowledge management and organizational culture emerged in author s complimentary research. The same can be done for technological entrepreneurship and performance. Finally, if they are interested in looking at these findings outside Guangdong borders, they might want to extend the study in other provinces or emerging countries, controlling for the effects of, for example, support policies of overall economic environment.

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