INNOVATION CAPABILITY AND MARKET PERFORMANCE: THE MODERATING EFFECT OF INDUSTRY DYNAMISM

Based on the resource-based view of the firm (RBV) and the resource/capability perspective of innovation, this study explores the independent and complementary effects of two types of innovation capability (namely product development capability and operational capability) on market performance in a sample of 2971 Chinese industrial firms. Product development capability and operational capability have different degrees of firm specificity in terms of the technological complexity of underlying resources. We further explore industry dynamism as an important moderating effect on the relationship between different types of innovation capability and market performance. Our findings suggest that,in the Chinese firms surveyed, both product development and operational capability in innovation positively contribute to market performance. The effect of operational capability is notably stronger than that of product development capability. We also confirm the complementary effect of operational capability with product development capability in enhancing market performance. Our findings further suggest that product development capability tends to have a stronger effect on market performance when the level of industry dynamism is low, while the impact of operational capability on market performance is stronger in industries with a relatively high level of dynamism.