Drawing on the external knowledge search literature and the literature on international diversification, this study examined the interactive effect of local and international search for new knowledge on product innovation and the moderating role of a firm's technology boundary spanning activities. Specifically, it proposed that extensive local and international search interact to positively predict product innovation success and this relationship is weaker for firms entering a new technology domain. The results using data on 343 Chinese manufacturing firms across 5 industries indicated the support for the predictions.
Product innovation is fraught with uncertainty given firms’ foggy market information and rapid technological developments that can quickly devalue a firm's existing knowledge base (Eisenhardt & Tabrizi, 1995). Academic studies have found that external knowledge, knowledge that spans a firm's boundaries, is vital for success in innovation (Phene et al., 2006 and Rosenkopf and Nerkar, 2001). A central idea of those studies is that open search for new knowledge helps a firm access external sources of knowledge, overcome the risk of blind spots and avoid unexpected changes in the market and technology (Chesbrough, 2003 and Rosenkopf and Nerkar, 1999). Research results have emphasized that the scope of external search – covering a wide range of external actors and sources – is very important (Laursen and Salter, 2006 and Leiponen and Helfat, 2010). In spite of the large body of evidence documenting the influence of search scope on innovation outcomes, many previous studies have focused their attention on sources of knowledge for innovation within a firm's national market (e.g., Garriga et al., 2013, Laursen and Salter, 2006 and Leiponen and Helfat, 2010). Relatively less scholarly research has investigated the importance of sources of external knowledge beyond national boundaries.
At the same time, research on international diversification has shown that firms expanding to multiple foreign countries with diverse market environments can enhance their competence and capabilities, resulting in better firm performance than competitors expanding into only a few or similar market environments (Barkema and Vermeulen, 1998, Hitt et al., 1997 and Zahra et al., 2000). Yet, despite the extensive literature in this area, little research has directly investigated how knowledge search in foreign markets interacts with domestic search activities. This lacuna is surprising because they represent two dimensions of the same external search process. The extent to which the knowledge-generating potential of a firm's external knowledge search is fully realized will depend on its search both at home and overseas. Simultaneous examination of two sources of knowledge is necessary to properly analyze the effectiveness of a firm's external search activities in promoting innovation.
The present analysis addressed these weaknesses by examining local and international search together in terms of their relationship with success in product innovation. The premise of this study was that knowledge search in both international and domestic markets must be accounted for when explaining innovation success, as the two sources complement each other in predicting better product innovation success. Further, the complementary effect varies depending on a firm's technology domain spanning, that is, a firm's adopting new technology that is outside its existing technological domain.
By integrating the external knowledge search literature and the literature on international diversification, this study strived to contribute to both research traditions. This study extended prior work on external knowledge search by recognizing international markets as an important source of knowledge complements a firm's local searching. This study also contributed to the research on international diversification by examining the interactive effect of international search and local search. The results demonstrated that local search and international search augment each other in promoting successful product innovation. This study also advanced prior research by highlighting the boundary condition of the joint effect of local and international search on product innovation.
This study tested the hypotheses using data on 343 Chinese manufacturing firms in multiple industries over a period of three years (1998–2000). China's increasing market liberalization generates a highly complex and dynamic market environment. New products are being introduced at an unprecedented pace (Zhang and Li, 2010 and Wu, 2012). To survive and succeed in this rapidly changing market, Chinese firms are under great pressure to search out and acquire advanced technologies through intensive search for new ideas and products (Child & Rodrigues, 2005). Moreover, many Chinese firms have rapidly expanded to foreign markets. While some concentrate on a few foreign markets, others expand to a large number of diverse destinations. One of the primary motivations for Chinese firms to expand globally is to acquire advanced technology and management skills (Beebe, Hew, Yueqi, & Dailun, 2006). Intensive local search, strong motivation to acquire world-class technologies, aggressive international expansion and rapid product innovation all make Chinese firms particularly useful for studying the relationship between local and international search and product innovation.
