THE EFFECTS OF THE INNOVATION TYPES OF VENTURE FIRMS AND GOVERNMENT SUPPORT ON FIRM PERFORMANCE AND NEW JOB CREATION: EVIDENCE FROM SOUTH KOREA.

Author:Han, Yoo-Jin
Position:Report
 
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INTRODUCTION

The innovation activities of venture firms play a significant role in achieving the economic progress of their countries (Baldwin & Picot, 1995; Lichtenthaler & Lichtenthaler, 2009; McWilliams & Siegel, 2001). However, venture firms lack physical and human resources compared with large corporations; thus, government can support venture firms to overcome financial setbacks (Lerner, 1999; McWilliams & Siegel, 2001).

Previous studies have shown that innovative activities of firms are likely to exert positive influence on the economic performance of firms and new job creation (Boglicino & Pianta, 2010; Herzog, 2011; Greenan & Guellec, 2000; Kwon, Park, Ohm & Yoo, 2015; Song & Chen, 2014). In particular, new job creation has been deemed one of the most indispensable factors of the economic growth of a country (Bogliacino & Pianta, 2010; Dencker, Gruber & Shah, 2009) because it contributes to solving unemployment problems and establishing a sustainable socioeconomic system (Broersma & Gautier, 1997; Kirchhoff & Phillips, 1988). Numerous venture firms have utilized innovation strategies and have played key roles in creating new jobs (Baldwin & Picot, 1995). A number of studies deal with the relationship between innovation and the key success factors of firms (i.e., firm performance and new job creation) in the Western business context, however, only a few studies have analysed the subject using Asian cases.

South Korea achieved rapid economic growth from the 1960s until the onset of the 1997-1998 Asian financial crisis (Choi, Dobbs, Suh, Mischke, Chon, Cho, Kim & Kim, 2013). In this process, the Korean government established innovation policies and initiated plans to enhance firm performance and employment creation (Harvie & Pahlavani, 2006; Sengupta & Espana, 1994). In other words, the government supported the development of major industries by setting up favourable environment. The government still presents various support plans for firms to facilitate innovation. Government support, a representative public support for firms especially at early stages (Lee & Bae, 2008), positively affects the firms' investment in innovation (Garcia & Mohnen, 2010). Despite the importance of government support for private-sector innovation, the effects are under investigated yet.

This study explores how the innovative activities of South Korean venture firms and government support affect firm performance and new job creation. Understanding these mechanisms is critical to the aim of driving national economic growth and enhancing the competency of firms (Davis, Haltiwanger & Schuh, 1996; Hohti, 2000; Lotti, 2007). The rest of this paper is organized as follows. Section 2 analyses the theoretical background and formulates hypotheses. Section 3 presents the research design. Section 4 provides the results based on the empirical analysis. Lastly, Section 5 discusses the practical implications and academic contributions, as well as the future research direction.

THEORETICAL BACKGROUND & HYPOTHESES

The Effects of the Innovative Activities of Firms on Performance and New Job Creation

Innovation activities are defined as the mechanism for diversifying scientific ideas and outcomes into commercial results, products, and performance (Schotchmer, 2006). Ultimately, these activities positively affect the value creation of firms, specifically in such aspects as cost reduction, sharing of the latest technology and the implementation of efficient processes (Cainelli, Evangelista & Savona, 2004, 2006). In addition, innovation activities are regarded as a driving force for economic performance and job creation (Kwon et al., 2015; Rosenberg, 2004). Prior research has shown that diverse types of innovation can substantially influence firm performance and new job creation (Wright, Gilligan & Amess, 2009). Job creation is a key component of corporate social responsibility (Husted & Allen, 2006). Firms can obtain social legitimacy by fulfilling social responsibility such as job creation. Social legitimacy is important for venture firms because they are likely to acquire resources from the environment.

In general, innovation activities are classified into three types, namely, technological, marketing and managerial innovations (Kwon et al., 2015; Van Reenen, 1997).

First, technological innovation is regarded as one of the main methods to enhance firm performance and initiate radical change. In addition, technological innovation is considered a ground-breaking activity in creating new modules, products, and processes (Dachs & Peters, 2014; West & Farr, 1989). Prior studies have considered technological innovation as an important determinant that affects the performance of venture firms and new job creation (Romijn & Albaladejo, 2002; Souitaris, 2002). In the past, possessing advanced knowledge was already sufficient to elevate a firm to a high growth level. However, current information and communication technology develops and changes rapidly. Thus, as the amount of refined technology and the number of products rapidly increase, firm performance (Kim & Park, 2010) and new employment creation in most business areas are positively affected (Edquist, Hommen & McKelvey, 2001; Fagerberg, Mowery & Nelson, 2006; Pianta, 2000). Accordingly, universities and research institutions supply skilled people to meet the talent demands of venture firms (Antonucci & Pianta, 2002). These studies have been used as a basis to predict that technological innovation has positive effects on firm performance and new job creation.

Hypothesis 1: Technological innovation is positively related to firm performance.

Hypothesis 2: Technological innovation is positively related to new job creation.

Marketing innovation is the extent to which firms enhance their marketing management activities, pricing policy, and guiding service plan for consumers (Williams, 1999). At present, venture companies gain value by interacting with customers and sharing user-oriented information through marketing management. The purpose of marketing innovation activities is to collect the creative ideas of consumers to upgrade products and services (Karat, 1996). Venture firms consistently want to rapidly adapt to the changing environment, gain consumer information, and respond to customer demands (Gunday, Ulusoy, Kilic & Alpkan, 2011). The feeling of connection of consumers to the marketing activities of venture firms can be positively related to the intent to enhance firm performance and employment creation (Becker & Dietz, 2004; Bryson, Rubalcaba & Strom, 2012; Preece, 1993). By integrating information with user-oriented strategies and reacting immediately to consumer demands in dynamic environments, venture firms can increase the resources of their competencies by selecting new talents and employees. Lee, Park, Yoon & Park (2010) proposed that marketing innovation, including user-centered strategies, improves firm performance in South Korea. Previous studies have indicated that many leading innovative firms have attempted to gain these competitive outcomes by expanding their organizational teams and selecting additional new employees (Hienerth, von Hippel & Jensen, 2014; Karat, 1996). Thus, marketing innovation is predicted to positively affect firm performance and new job creation.

Hypothesis 3: Marketing innovation is positively related to firm performance.

Hypothesis 4: Marketing innovation is positively related to new job creation.

Managerial innovation encompasses activities that are designed to provide and determine the competitive advantage of the human resources of an organization (Agyris & Schon, 1978). From the perspective of organizational management, managerial innovation is used to adapt the competencies of a firm to the competitive environment that is associated with the firm's innovative capability; hence, undertaking managerial innovation will enable the organization to build innovation performance systems by implementing various organizational policies or activities (Hayes, Pisano and Upton, 1996).

Managerial innovation activities offer several advantages, such as (1) differentiated cost reduction, (2) on-going transformation and the potential to interact with rapidly changing environments, and (3) performance-oriented supervision with immediate response to changes in the market (Brown & Eisenhardt, 1997; Henderson & Clark, 1990; Mezias & Glynn, 1993). Rapidly changing environments and technological development approaches have added to the challenges faced by organizational management practices. Many firms can acquire resources and knowledge of the how-to, what, and why of significant innovation trends regardless of their environmental boundary size (Crossan & Apaydin, 2010; Lewin & Volberda, 1999). In addition, managerial innovation is known to have positive influences on firm performance (Cornelli & Karakas, 2008; Guo, Hotchkiss & Song, 2011). Several studies have suggested that managerial innovation, including financial investment, improves firm performance...

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