In the modern economy, design is one of the most important factors of firm competitiveness. As design always creates demand, firms can improve their performances through investment in design. Design development increases a firm’s sales by influencing the appearance of final goods and the corresponding experience value of consumers. In addition, when design is incorporated in the production process, it has a positive impact on competitiveness by enhancing the efficiency of the production process. In spite of the importance of design in doing business, there have not been many studies that analyze empirically the impact of design on firm performance.Investment in design can be considered as an activity to accumulate intangible assets or knowledge-based capital, because accumulated design competence enhances innovative activities. Firms decide strategically on investment in tangible and intangible assets in order to maximize their profits. The role of intangible assets such as R&D (research and development), patents, design, and brand, has become important, whereas in the past physical capital had dominant effects on profits.Kemp et al. (2003) divide the innovation process into four stages: the decision to innovate, the innovative intensity, the innovation output, and the firm performance. At the first stage, a firm decides whether to innovate or not. If the firm decides to innovate, at the second stage, it influences the innovative intensity by increasing the innovative input. At the next stage, the innovation output is determined by the innovative input, and finally, the innovative output influences the firm performance. In short, investment in innovation influences firm performance through the innovation process, as firm investment in design carries the potential to enhance innovation competence through the accumulation of intangible assets.This study analyzes empirically the effects of design competence on firm performance. We classify design competence into quantitative and qualitative competence and then analyze econometrically how each type of competence affects firm performance based on a survey of Korean firms. The article is organized as follows. In Section 2, we investigate the existing literature on the relationship between design investment in the course of innovation processes and firm performance. In Section 3, we describe the data and the models to be used for the empirical analysis. The results of the analysis are shown in Section 4, and the policy implications are presented in Section 5
