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Do Knowledge Competencies and Competitive Market Environments Raise Innovation? An Empirical Analysis of German Firms

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Academic year: 2022

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Do Knowledge Competencies and Competitive Market Environments Raise Innovation? An Empirical Analysis of German Firms

Shoaib Abdul Basit

PhD Student, Technische Universität Chemnitz

Uwe Cantner

Department of Economics, Friedrich Schiller University Jena Thomas Kuhn

Faculty of Economics and Business Administration, Technische Universität Chemnitz

Abstract

Knowledge competencies and research and development (R&D) activities are one of the most important sources of innovation activities within firms while competitiveness of the environment may also be associated with firm performance. However, the impact of competitive market environment on innovation activities by influencing knowledge competencies and research and development (R&D) activities has not been fully understood. This study provides new evidence on the linkage between knowledge competencies (measured as a percentage share of university graduate employees), R&D activities (in terms of internal and external R&D activities), the competitiveness of the market environment and innovation in East and West German industry. In particular, we examine the moderating role of market competitiveness (measured as market competition) on the relationship between knowledge competencies, R&D activities and innovation output (in terms of product, process, marketing and organizational innovation). For this analysis, we use data from Mannheim Innovation Panel (MIP) Community Innovation Surveys (CIS) for the years 2011, 2013, 2015 and it includes data about German manufacturing and service firm’s innovation activities with five or more employees. Confirmatory factor analysis (CFA) and hierarchical moderation regression are used to test our hypothesis. We find that market competition strengthens the effect of knowledge competencies on product and organizational innovation as well as the effect of internal R&D activities on organizational innovation whereas the effect of external R&D activities on all four types of innovation including product, process, marketing and organizational innovation is weakened. Moreover, we find that this moderation effect varies depending on the region by comparing results for East and West Germany. The market competition effect positively moderates the impact of internal R&D activities on product and organizational innovation and market competition also positively moderates the effect of external R&D activities on product innovation only in East Germany. On the other hand, market competition strengthens the effect of knowledge competencies on product innovation and organizational innovation while market competition weakens the effect of external R&D activities on product innovation in West Germany. The practical policy implications are discussed.

Keywords: Knowledge Competencies, Market Competitiveness, Internal and External R&D

Activities, Innovation

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