Journal of Science and Technology Policy in China

The impact of technological innovation capabilities on innovation performance: An

empirical study in Hong Kong
Antonio K.W. Lau Richard C.M. Yam Esther P.Y. Tang

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Antonio K.W. Lau Richard C.M. Yam Esther P.Y. Tang, (2010),"The impact of technological innovation
capabilities on innovation performance", Journal of Science and Technology Policy in China, Vol. 1 Iss 2 pp.
163 - 186
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The impact of technological

innovation capabilities
on innovation performance
An empirical study in Hong Kong

Technological
innovation
capabilities
163

Antonio K.W. Lau

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Division of Social Science,

The Hong Kong University of Science and Technology, Hong Kong, China

Richard C.M. Yam

Department of Manufacturing Engineering and Engineering Management,
City University of Hong Kong, Hong Kong,
Peoples Republic of China, and

Esther P.Y. Tang

Department of Management and Marketing,
The Hong Kong Polytechnic University, Hong Kong,
Peoples Republic of China
Abstract
Purpose Recent studies have advocated the impact of technological innovation capabilities (TIC)
on firms competitive performances. This paper adopts a study framework of innovation audit
to examine the relevance of TIC on the innovation performance of the electronics industry in Hong
Kong (HK)/Pearl River Delta region.
Design/methodology/approach Empirical data were acquired through a recent survey of
electronics firms in the region. Pearson correlation and regression analysis were employed to examine
the relationship between TIC and innovation performance.
Findings The results verify that R&D, resource allocation, learning, and strategy planning
capabilities can significantly improve the innovation sales. R&D and resource allocation capabilities
can also significantly improve new product introduction.
Research limitations/implications The paper contributes to existing literature by studying the
impact of TIC on innovation performance in HK. It also explores two out of seven TIC R&D and
resource allocation capabilities to improve firms innovation performance in the region.
Originality/value This paper is one of very few that provide empirical evidence of the TIC and
innovation performance in HK. It also revisits the audit framework proposed by recent innovation
studies, which helps theoretical development.
Keywords Innovation, Technology led strategy, Electronics industry, Hong Kong
Paper type Research paper

1. Introduction
Innovation has always played a critical role in predicting the long-term survival of
organizations (Ancona and Caldwell, 1987), in determining an organizations success
(Higgins, 1995), and sustaining its global competitiveness (Porter, 1990). Extensive
researches in innovation management had descriptively linked innovation with

Journal of Science and Technology

Policy in China
Vol. 1 No. 2, 2010
pp. 163-186
q Emerald Group Publishing Limited
1758-552X
DOI 10.1108/17585521011059893

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164

competitive and economic outcomes at national level (Carlsson et al., 2002; Carlsson
and Stankiewicz, 1995; Organization for Economic Cooperation and Development
(OECD), 1997; Edquist, 1997; Nelson, 1993; Lundvall, 1992; Freeman, 1987), as well as
at regional level (Fritsch and Stephan, 2005). Freeman (2002) illustrates this fact by
analyzing the economic growth of Britain in the eighteenth century, USA in the second
half of the nineteenth century and catching up countries in the twentieth century. The
Ifo Institute in Germany collected annual innovation data from 1979 to 1992
(Schmalholz and Penzkofer, 1993). Italys survey on national innovation system was
one of largest studies in the field and it covered 24,000 businesses with an independent
legal status (Evangelista et al., 2001; Archibugi et al., 1991). In collaboration with the
Nordic Fund for Industrial Development, OECD (1992) proposed guidelines for
collecting and interpreting technological innovation data, i.e. the OSLO manual (1992)
and its revised version (1997). Eurostat used the OSLO manual for the Community
Innovation Survey (CIS). Since then, major progress has been made towards collecting
innovation data in several European countries and even in Mainland China. Based on
the OSLO manual, a survey on innovation activities in Mainland China was conducted
at large-scale in 1996, supported by the Chinese Science and Technology Ministry,
National Natural Science Foundation of China, and State Statistic Bureau. These
surveys have produced positive impacts on public both in China (Guan, 2002) and
abroad (OECD, 1997).
Drawing on the above literature, Yam et al. (2004) conducted an empirical survey on
technological innovation for manufacturing firms in Beijing region (Guan et al., 2005,
2006; Guan and Ma, 2003). That study integrated the findings of innovation capabilitys
studies (OECD, 1997) and measured the technological innovation capabilities (TIC) that
each technological capability represents a separate business function of an organization
(i.e. R&D, manufacturing, and marketing capabilities) or a cross-functional business
process (i.e. learning, organizing, strategic planning, and resource allocation
capabilities). However, Yam et al. (2004) did not propose propositions or research
hypotheses that weakened its theoretical supports on the survey findings. Following
Yam et al.s (2004) study, this paper proposes seven hypotheses to investigate the
relationship between TIC and innovation performance in manufacturers in Hong Kong
(HK)/Pearl River Delta (PRD) region.
The present study contributes to existing knowledge in twofold. First, this study
revisits the audit framework proposed by recent innovation studies (Yam et al., 2004; Guan
and Ma, 2003). As suggested by the authors of that framework (Yam et al., 2004), the
measures of innovation capabilities have to be further refined and cross-validated on
additional samples. As the framework was verified by state-own enterprise data
(Yam et al., 2004), additional data from private enterprises may help generalize the
framework. Re-verifying existing study from one region to another one helps accumulate
knowledge in the academic development (Singh et al., 2003). Recent literature has tested
the associations between innovation capabilities and performance in western countries
(Freeman, 2002), but a few studies use HK/PRD region as a data source to re-verify these
associations. HK/PRD region is one of the largest and fastest growing manufacturing
regions in the world with over HKD 225 billions of total exports in 2003 of which over
50 percent of the export come from electronics sectors, such as finished electronics
products, household electrical appliances, and electronic parts, and components
(Hong Kong Census and Statistics Department (HKCSD), 2005). The innovation

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performance of this region should be important for academics to further analyze (Yu, 2005;
Hobday, 1995).
Second, this study is one of very few studies that provide empirical evidence of the
TIC and innovation performance in the region. Many studies show that, as most HK
manufacturers have relocated their plants to China taking advantage of labor and land
cost, they are weak at technological innovation (Yu, 2005; Federation of Hong Kong
Industries (FHKI), 2003; Lo et al., 2001; Tummala et al., 2000; Tien, 1999). According to
annual Global Competitiveness Report 2004 published by OECD, in the ranking of
innovation and technology capabilities, HK is significantly lower than the other Newly
Industrialized Economies (NIEs) such as Taiwan, Singapore, and Korea. Being a major
partner in the region (FHKI, 2003), HK has developed different technological
innovation patterns and is plainly weak to upgrade their TIC against other NIEs
(Yu, 2005; Chiu and Wong, 2004). Using economic analysis approach, Han et al. (2002)
found that HK electronics industry is deficient in applying existing technology
efficiently and facilitating the acquisition of foreign technology against other NIEs
such as Singapore and Korea (Lam and Kwok, 2004). It is indispensable for the
manufacturers in the region to improve their innovation performance in order to
sustain the competitiveness of the region. This study contributes to the region by
raising the awareness of the importance of technology innovation and identifying key
TIC that should be further cultivated in the region.
2. Literature review
2.1 Technological innovation capabilities (TIC)
Burgelman et al. (2004) defines TIC as a comprehensive set of characteristics of an
organization that facilitates and supports its technological innovation strategies. TIC is
a kind of special assets or resources that include technology, product, assets,
or knowledge, experience, and organization (Guan and Ma, 2003). Lall (1992) defines TIC
as the skills and knowledge needed to effectively absorb, master, and improve existing
technologies, and to create new ones. Evangelista et al. (1997) regards R&D activities as
a central component of the technological innovation activities of firms and as the most
important intangible innovation expenditure. Not only does successful technological
innovation depend on technological capability, but it also requires other innovation
capabilities in the area of manufacturing, marketing, organization, strategy planning,
learning, and resources allocation (Yam et al., 2004; Romijn and Albaladejo, 2002).
According to Adler and Shenbar (1990), four types of TICs are identified, including:
(1) The capacity of satisfying market requirement by developing new products.
(2) The capacity of manufacturing these products by using appropriate process
technologies.
(3) The capacity of satisfying future needs by developing and introducing new
products and new process technology.
(4) The capacity to respond to an unanticipated technology activity brought about
by competitors and unforeseen circumstances.
These capabilities exist in a firm.
According to Peteraf (1993), a firms heterogeneous resource portfolios (including
human, capital, and technology resources) are responsible for observed variability in

Technological
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its financial returns. These are a firms specific competencies that contribute
substantially to the sales growth and competitive advantage. There would have to be a
causal connection between a firms resources and performance. Dierickx and Cool
(1989) argue that firms should attempt either to imitate high-performing resources or to
develop alternative resources that could produce similar benefits. Thus, the
improvement of TIC as key firms resources can be beneficial to a firm (Guan and
Ma, 2003). For example, Lawless and Fisher (1990) found that successful technological
innovation helps firms to gain market position and realize more long-term returns.
Yam et al. (2004) found that TIC is positively related to new product introduction and
innovation sales.
2.2 A study framework for innovation audit
This study follows an audit framework proposed by Yam et al. (2004) to investigate the
TIC and their impacts on innovation performance in electronics manufacturers. The
framework was developed by reviewing existing literature in innovation capabilities
(Burgelman et al., 2004; Chiesa et al., 1996; Cooper, 1996; Christensen, 1995; Rothwell,
1992), conducting a focus group discussion of senior executives from innovative firms
in Beijing region, and then statistically testing the framework through a large-scaled
questionnaire survey in Beijing (Yam et al., 2004).
Recent literature shows that TIC involves a vast variety of characteristics
(Burgelman et al., 2004). Christensen (1995) classified TIC into science research asset,
process innovation asset, product innovation asset, and esthetics design asset. These
assets correlate with internal accumulation, experimental acquirement, and disquisition.
A firms competitiveness roots in its possession of special assets and resources that are
valuable, heterogeneous, and difficult to be imitated and substituted. These would
safeguard the firms position in the areas of strategy and technology management. Bobe
and Bobe (1998) adopted a checklist method for measuring TIC practices in three
European Union countries, namely, Germany, the UK, and France. Similarly OSLO
manual (OECD, 1997) proposed the following measurements, such as the national
innovation systems context; innovation and firms strategy; organizational structures
and the organizational moves linking production, marketing, and design; origin of
technological resources; management of human resources; global innovation trends.
Chiesa et al. (1996) developed a technical innovation audit framework encompassing
several main parts, such as product innovation, product development, process
innovation, technology acquisition, leadership, and resourcing. That framework
focused on core processes and enabling processes to delineate technological
innovation. However, as Chiesa et al.s (1996) suggest, more evidences are needed to
test the validity of the framework (e.g. overlapping between product innovation and
development). Other areas such as learning, organizing, and strategic planning that
were important for a firms innovation capability should also be stressed.
The innovative capabilities audit framework proposed by Burgelman et al. (1988)
included five audit dimensions resource availability and allocation; capacity to
understand competitor innovative strategies and industry evolution; capacity to
understand technological developments; structural and cultural context; strategic
management capacity.
Thus, an innovation audit framework for evaluating a firms innovation
performance and competitiveness is shown in Figure 1.

Technological
innovation
capabilities

Technological innovation
capabilities (TIC)
Learning capability
H1
R&D capability

H2

Resource allocation capability

H3

Manufacturing capability

H4
H5

167
Innovation performance
Innovation performance
sales performance

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Marketing capability
H6
Organizing capability
Strategic planning capability

H7

Technological innovation capabilities (TIC). The framework measured TIC in seven

dimensions:
(1) Learning capability is the capacity to identify, assimilate, and exploit new
knowledge essential for a firms competitive success.
(2) R&D capability refers to a firms ability to integrate R&D strategy, project
implementation, product portfolio management, and R&D expenditure.
(3) Resource allocation capability is the firms ability to mobilize and expand its
technological, human, and financial resources in the innovation process.
(4) Manufacturing capability refers to the ability to transform R&D results into
products, which meet market needs, in accordance with design request and can
also be manufactured in batches.
(5) Marketing capability indicates the capacity to publicize and sell the products on
the basis of understanding consumers current and future needs, customers
access approaches, and competitors knowledge.
(6) Organizing capability is the capacity to constitute a well-established
organizational structure, cultivate organizational culture, coordinate the work
of all activities towards shared objectives, and influence the speed of
innovational processes through the infrastructure it creates for developmental
projects.
(7) Strategic planning capability is the capacity to identify internal strengths and
weaknesses and external opportunities and threats, adopt different types of
strategies that can adapt to environment changes for the excelling in the highly
competitive environment.
Technological innovation performance. A review of literature shows that the study of
technological innovation performance indicators has attracted considerable attention.
Traditional indicators of a firms technological innovation activity tend to
measure the financial terms of innovation, R&D expenditures (Jacobsson et al., 1996;

Figure 1.
The relationship between
TIC and innovation
performance

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Kleinknecht, 1987) and patent data (Patel and Pavitt, 1997, 1991; Jacobsson et al., 1996;
Archibugi, 1992; Griliches, 1990). However, firms would not easily reveal any
confidential financial information and different firms adopt varied accounting
conventions in their inventory valuation, depreciation, and salaries computation.
Besides, patent data are only a reflection of invention rather than innovation (Flor and
Oltra, 2004). Technological innovation is a commercially successful invention (Betz,
2003). A patent can only reflects on the invention but cannot guarantee that the invention
is successful (Coombs et al., 1996). Different patents also have different technological
levels and economic values, making comparisons more difficult (Griliches, 1990). Even
many technological innovations cannot be patented and companies resort to other
methods to protect their technological advantage (Coombs et al., 1996). Thus, alternative
measures are used to secure adequate responses to our investigation. We follow existing
literature (Yam et al., 2004; OECD, 1997) to use two innovation performance indicators in
this study are innovation performance and sales performance.
Innovation performance is measured in terms of the number of commercialized new
products expressed as a percentage of all products in the company over the last three
years (Yam et al., 2004). According to OSLO manual (OECD, 1997), the number of
innovations along is not a good indicator for innovation performance because there are
significant differences in such numbers across industries. Innovation rate is a better
measure as it shows the relative innovative strength of the firms surveyed. A firms
competitive advantage could come from the efficiency and capability of new product
developments (Guan, 2002; Lawless and Fisher, 1990). The increase in product
innovation rate is rooted in the accumulation of capabilities and contributes to
innovation outputs. In most circumstances, high performance firms have stronger
capabilities compared to low performance firms.
Sales performance is measured in terms of the average annual sales growth rate due
to technologically innovative products over the last three years (Yam et al., 2004). Sales
growth rate represents one dimension of a firms market advantage. It shows whether
the innovation has had market impact or been financially successful.
2.3 Research hypotheses
Following Yam et al. (2004) approach, this paper proposes seven hypotheses between
each TIC and innovation performance. The findings of the study thus test the
relationship between TIC and innovation performance with better theoretical
background.
Learning capability and innovation performance. Learning capability was defined as
the capacity to generate ideas with impact, across multiple boundaries, and through
specific management initiatives (Yeung et al., 1999); the ability of an organization to
learn the lesson of its experience and to pass those across boundaries and time
(Ashkenas et al., 1995). Learning is one of the most valuable assets that provides
sustainable competitive advantage and a key element for access, acquisition, and
development of new knowledge from external boundaries (Caloghirou et al., 2004). Many
literatures have reflected that firm-level technological advancement is conceptualized as
a learning process. Learning results in generation of knowledge and skills needed for
firms to choose, install, operate, maintain, adapt, improve, and develop technologies
(Lall, 1992). Freeman (2002) argues that the innovative performance is closely related
with active learning. The capacity to sustain innovation has found to be associated with

organization learning (Leonard-Barton, 1992; Senge, 1990). Thus, the following

hypothesis is proposed:

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H1. Learning capability is positively related to technological innovation

performance.
R&D capability and innovation performance. R&D capability is defined as a firms
ability to integrate R&D strategy, project implementation, and R&D expenditure.
In general, R&D activities are being regarded to closely relate to innovation as R&D
aim at creating something new. Evangelista et al. (1997) regards R&D activities as a
central component of the technological innovation activities of firms. In fact, many
innovation studies employed R&D inputs as the indicators of technological innovation
activity level, such as R&D budget (Jacobsson et al., 1996), existence of formalized
R&D in the company and participation in R&D projects with other organizations
(Flor and Oltra, 2004). Therefore, R&D is considered to be a key part of innovation
activities. Caloghirou et al. (2004) found that the higher the level of the R&D efforts and
training within a firm is, the more the firm will be able to create and exploit novelty.
Bougrain and Bernard (2002) found that R&D capacities would enhance the firms
ability to cooperate and carry innovation projects to success. Many researchers
also argue that the intensity of R&D was strongly associated with innovation
(Souitaris, 2002; Zairi, 1996). Based on the above discussion, we propose that:
H2. R&D capability is positively related to technological innovation performance.
Resource allocation capability and innovation performance. Resource allocation
capability is defined as a firms ability to mobilize and expand its technological,
human, and financial resources in the innovation process. Resource is always a critical
factor for all kinds of activities and processes. Evangelista et al. (1997) proposes that
technology resources are going to increase its importance as a strategic factor for firms
performance in near future. Human resources are other crucial issues for innovation
performance. Jacobsson et al. (1996) put forward the use of statistics on company staff
with higher education in engineering and science as a technological innovation
performance indicator. In addition, technological innovation activities cannot be
carried out if there is no support of finance. Italian survey found that the major
obstacles for introducing technological innovation are of an economic nature (i.e. lack
of appropriate sources of finance, and cost of innovation is too high). A few studies also
found that resource allocation capability enables firm to sustain global
competitiveness (Yam et al., 2004; Guan and Ma, 2003). Therefore, we propose the
following hypothesis:
H3. Resource allocation capability is positively correlated with technological
innovation performance.
Manufacturing capability and innovation performance. Manufacturing capability is
defined as a firms ability to transform R&D results into new products which meet
market needs, and to attach importance to overall quality control and continuous
improvement of manufacturing systems. Technological innovation is the
transformation of an idea into a new or improved saleable product or operational
process in industry or commerce (OECD, 1997). Following this definition of innovation,
successful innovation involves saleable product. An outstanding and creative R&D

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output alone cannot lead to good innovation performance. It must be processed by

manufacturing in the innovation process. The capacity of manufacturing may not only
guarantee the success of the transformation of R&D outcome into product, but also
ensure its quality suits customers needs. Evangelista et al. (1997) found that most of
the manufacturing firms in Italy rely on the investment in manufacturing machinery as
the most important innovation source and the improvement of product quality is a key
element in Italian manufacturing firms innovation strategies, all of which aimed at
enhancing innovation performance through advancing manufacturing capability.
Besides, some researchers found that the intensity of quality control is strongly
correlated with innovation (Zairi, 1996) and manufacturing capability was found to be
effective in enhancing firms competitive advantage (Yam et al., 2004). Thus, the
following hypothesis is proposed:
H4. Manufacturing capability is positively related to technological innovation
performance.
Marketing capability and innovation performance. Marketing capability indicates a
firms capacity to publicize and sell the products on the basis of understanding
consumers current and future needs, customers access approaches, and competitors
knowledge. For a new product to hit the targeted customers, it is essential for the firm
to be capable of keeping connected with the market in order to promote new products
and to understand customers needs and their feedbacks of the products. The OSLO
manual has identified marketing as a key innovation activity (OECD, 1997). Various
authors have found that innovation was positively associated with acquisition and
scan of market information (Tidd et al., 2001), effective marketing programs (Cooper,
1984) and broad distribution systems (Maidique and Zinger, 1984). The rate of
technological innovation was also associated with marketing competency (Souitaris,
2002). Hence, we propose that:
H5. Marketing capability is positively correlated with technological innovation
performance.
Organizing capability and innovation performance. Organizing capability is defined as
a firms ability in securing organizational culture and adopting good management
practices. Ability to manage internal cooperation among departments and external
communication with suppliers and customers are also included. Wan et al. (2003)
indicated that innovation is positively correlated with organizational structure and
culture. Interactions with customers and suppliers are thought to be beneficial to
innovation (von Hippel, 1988; Lundvall, 1988). Some researchers, such as Rothwell
(1992), Rogers and Shoemaker (1971), and Burns and Stalker (1961), have identified a
positive association between internal communication and technological innovation.
The researchers found that, the more the firm uses formal mechanisms to scan external
information and cooperate with external organization, the more is its openness to
external sources of knowledge with successful innovative performance (Caloghirou
et al., 2004). Souitaris (2002) argued that a firms ability to communicate with the
stakeholders, develop external networks, formulate interdepartmental teams working
on innovation projects, and work on internal communication system is associated with
technological innovation performance. Hence, the following hypothesis is proposed:

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H6. Organizing capability is positively associated with technological innovation

performance.
Strategic planning capability and innovation performance. Strategic planning capability
is defined as a firms ability to identify internal strengths and weaknesses and external
opportunities and threats, and to formulate plans in accordance with corporate vision
and missions. Strategic management literature views strategy as a network of choices
to position the firm according to its environment. Porter (1990) made a major
contribution to the analysis of innovation on corporate strategy. His approach implies
that managers have to analyze the internal and external environment and, based on
this analysis, to determine a definite course of action. Cooper (1984) identifies an
association between corporate strategy and innovation performance. Well-defined
business strategies as well as plans for new technology were found to be positively
correlated with innovation rate (Swan and Newell, 1995; Rothwell, 1992). Owing to its
significant effect, Souitaris (2002) includes this strategic planning capability in his
model of innovation. Therefore, we propose that:
H7. Strategic planning capability is positively correlated with technological
innovation performance.
3. Methodology
The purpose of the present study is to identify the impact of the TIC on innovation
performance. A survey questionnaire was designed. The results give empirical
evidences on the TIC and its relationships with innovation performance.
3.1 Sampling
Technological innovation is critical for the competitiveness of all types of
manufacturing industries. The difference lies on the variation in the degree and pace
of utilization of technologies in different industry sectors. Under the technology-driven
world in the twenty-first century, a study on innovation is believed to be based on
technology-intensive manufacturing industry.
Judging from this way of thinking, we verify the applicability of Yam et al.s (2004)
framework in electronic industry sector. The electronics industry is very sensitive to
technology advancement (Betz, 2003). Electronic industry ranked the top of the list of
fast growing innovation rate industry (Mahmood and Singh, 2003) and this industry
accounts for 9.9 percent of total gross output in manufacturing industry, according to
the report on the 2003 Survey of Industrial Production.
The electronics industry has representative output share in the HK manufacturing
industries (FHKI, 2003). HK electronics industry is highly involved in one of Chinas
key manufacturing regions, i.e. the PRD region in China (FHKI, 2003; Hong Kong
Trade Development Council (HKTDC), 1998). A survey of Federation of HK Industry
claims that there are over ten-million people working for HK manufacturers in PRD
region (FHKI, 2003). Electronics industry is representative of the PRD region as the
leading export industries in the world with an export value of approximately HKD
225 billion (HKCSD, 2005). Management decisions of practitioners in this industry have
a significant impact upon the region as well as being markedly relevant to Chinese
business environment.

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To select the sample population, we used the Directory of HK Industries published

by HK Productivity Council. The council led by HK Government aims to improve
manufacturers capability to quality and innovation performance (Hobday, 1995). The
directory is comprehensive as it covers all the major industry sectors of HKs economy
and has over 15-year publishing history. Thus, it is believed that the directory can
provide reliable information for the survey.
The targeted respondents of the survey were senior product development
managers, vice presidents, or directors listed on the directory. They were requested to
fill out the questionnaire. Follow-up faxes and phone interviews were conducted by a
trained interviewer to ensure data quality.
Of the 1,012 firms selected from the directory, 934 were reached (78 letters were
undelivered because of a change of address or the contact person having left the firm).
The firms were selected as the directory noted that they were classified in the electronic
industry with production facilities in China and offices in HK. They were also
contacted to know that they had production facilities in PRD. Of the 934 targeted firms
successfully contacted, 81 effective responses were collected. This is a response rate of
8.7 percent. The sample profile is shown in Table I.
3.2 Questionnaire design and reliability test
A questionnaire was designed according to OECD (1997) and previous researches
(Yam et al., 2004; Guan and Ma, 2003; Guan, 2002). The wordings of the questionnaire
Number

Table I.
Demographic
characteristics of the firms

Type of sub-industry
Electrical appliances and house and electronics toys
14
Electronic parts and components
28
Office, accounting, and computing machinery
21
Radio, TV, and communication equipment and
apparatus
17
Others
1
Company size
1-99
10
100-500
24
500-999
16
1,000-3,000
17
. 3,000
14
Have developed technological improved products in the past three years
Yes
74
No
7
Have developed technological improved manufacturing processes in the past three
years
Yes
72
No
9
Novelty of the technological improved products or processes
New to organization
44
New to industry in PRD
24
New to industry in the world
13
Note: n 81

%
17.3
34.6
25.9
21
1.2
12.3
29.6
19.8
21
17.3
91.4
8.6
88.9
11.1
54
30
16

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were slightly modified to reflect the understanding of technological innovation in the

region according to our pilot test discussed below.
The scales of the TIC and innovation performance were directly adopted from
Yam et al. (2004). A total of 50 items of measurement were developed to measure the TIC.
The respondents were asked to give opinions on to what extent do they agree with the
statements regarding to firms TIC by selecting on continuum between Strongly
disagree (rating 1) and Strongly agree (rating 7). Innovation performance is measured
by two items, i.e. percentage of sales due to technologically new or improved product,
and percentage of number of commercialized new products in company per year
(see Appendix, Table AI.). The respondents were asked to identify the percentages of
sales due to new products and number of new product launched per year.
Two control variables were used in this study, i.e. company size and type of
sub-sections of the industry. By controlling for company size, potential economies, and
diseconomies of scale of different sized companies are accounted for Devaraj et al.
(2004) and Swan and Allred (2003). This reduces any performance measurement bias
due to company size. By controlling the sub-sectors of the industry, this study controls
the extent to which unexpected changes in the industry sectors may have altered the
innovation activities in the sampled industries (Kotler, 2003).
Perceptual measurements have been used as firms were reluctant to share objective
performance data because of confidentiality issues (Ward et al., 1996). Pagell and
Krause (2004) argue that where survey studies are cross-industry in nature, the
individual objective performance might vary in different industries, which would
affect the survey results. Ledwith (2000) argues that subjective measurement allows
rational comparisons among companies operating in different market situations. It is
inappropriate to use objective measurements of sales volume, return on investments,
or profitability to rate the performance of companies differing in size and market
segment as resources are different in each case (Ledwith, 2000).
In order to improve the comprehensibility of the draft questionnaires, a pilot study
was conducted. Three academic staff and five practitioners were interviewed to discuss
the content and wordings of the questionnaire. On average, interviews lasting an hour
were conducted for each expert to verify the questionnaire. The academic staffs were
professors in the field of innovation management and manufacturing strategy. The
practitioners are senior staff in the sampled industry.
Construct reliability was tested by using Cronbachs alpha reliability test (Johnson
and Wichern, 1998). Cronbachs alpha (a) was used to assess the scale reliability of
each construct in the model (Figure 2). The reliability of all factors is reported in the
Appendix. a of every factor was . 0.70, which is a very good statistical result (Johnson
and Wichern, 1998).
4. Results
4.1 Sample profile
Table I shows that, by size, 12.3 percent of the companies have less than 100 employees,
29.6 percent of the companies are of 100-500 employees, 19.8 percent of them have
500-999 employees, 21 and 17.3 percent of them have 1,000-3,000 and more than 3,000
employees, respectively.
The table also shows the sub-sectors of the industry. About 17.3 percent of the
respondents are of Electrical appliances and house and electronics toys, 34.6 percent

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Learning
4.8
Strategy planning

R&D

4.6
4.4

174

4.2
4

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Organizing

Figure 2.
TIC of the electronics
industry in HK/PRD
region

Resource allocation

Marketing

Manufacturing

of them are of Electronic parts and components, 25.9 percent of them are of Office,
accounting, and computing machinery and 21 percent of them are of Radio, TV,
communication equipment and apparatus.
More importantly, the table shows that 74 (91.4 percent) of the respondents have
developed technologically improved products in the past three years; 72 (88.9 percent)
of them have developed technologically improved manufacturing processes in that
period. It is interesting that all firms who developed innovative manufacturing
processes also developed innovative products in the past three years. It is possible that
process innovation always follows product innovation (Betz, 2003). As our targeted
samples were innovative manufacturers, only those who developed technologically
improved products (i.e. 74) were qualified and then selected in the following analyses.
4.2 Data analysis
After refining the sample sizes, the correlation analysis was used to investigate the
linkages between TIC and innovation performance. Table II represents means,
standard deviation, and Pearson correlation of them. It is found that, for the sampled
industry, the technological innovation performance is highly and positively correlated

Variables

Table II.
Correlation analysis on
the relationship between
TIC and innovation
performance

( H1 ) Learning capability
( H2 ) R&D capability
( H3 ) Resource allocation capability
( H4 ) Manufacturing capability
( H5 ) Marketing capability
( H6 ) Organizing capability
( H7 ) Strategy planning capability
Firm size
Type of sub-industrya

Mean

SD

4.51
4.48
4.47
4.50
4.69
4.51
4.54
3.01
2.54

1.54
1.67
1.61
1.40
1.40
1.28
1.53
1.31
1.05

Innovation performance
Percentage of sales Percentage of new product

Notes: n 74; *p , 0.05; * *p , 0.01; acontrol variables

0.78 * *
0.86 * *
0.84 * *
0.72 * *
0.76 * *
0.78 * *
0.85 * *

0.56 * *
0.74 * *
0.72 * *
0.66 * *
0.70 * *
0.68 * *
0.71 * *

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with TIC ( p , 0.01). All of the seven capabilities learning, R&D, resource allocation,
manufacturing, marketing, organizing, and strategy planning are significantly
correlated with the percentage of sales income due to technological improved products
and the percentage of commercialized new products as shown in Table II. Table II
shows that two control variables firm size and nature business do not show any
significant relationship with the innovation performance.
As shown in Table III, regression analysis shows that learning, R&D, resource
allocation, and strategy planning capabilities are very significantly correlated with the
percentage of sales incomes due to new or improved products (adjusted R 2 0.358).
Among these four capabilities, strategy planning is the most influential (b 0.289,
p , 0.01), followed by R&D (b 0.253, p , 0.05), resource allocation (b 0.241,
p , 0.05), and learning (b 0.193, p , 0.05). The findings also show that both
organizational size and nature of business as the control variables do not exhibit a
significant relationship with innovation performances.
Table III shows the relationship between TIC and percentage of commercialized
new products. The results show that only R&D (b 0.407, p , 0.01) and resource
allocation (b 0.368, p , 0.05) are significantly correlated with the percentage of
commercialized new products. Both firm size and nature of business as the control
variables are insignificantly correlated with the innovation performance. In summary,
the above analyses support H1-H3 and H7, but not H4-H6.

Technological
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5. Discussion
This study verifies new ideas and relationships beyond existing literature. The results
of this study have implications for management and future research opportunities. We
will discuss these results in two sub-sections: the relationship between TIC and
innovation performance and TIC in the region.

TIC
Control variables
Firm size
Type of sub-industry
Main constructs
( H1 ) Learning capability
( H2 ) R&D capability
( H3 ) Resource allocation capability
( H4 ) Manufacturing capability
( H5 ) Marketing capability
( H6 ) Organizing capability
( H7 ) Strategy planning capability
F
R
R2
Adjusted R 2

Innovation performance
Regression coefficient ( b )
Regression coefficient ( b )
Percentage of sales
Percentage of new products
ns
ns
ns
0.193 *
0.253 *
0.241 *
ns
ns
ns
0.289 * *
74.54 * *
0.611
0.373
0.358

Notes: n 74; *p , 0.05; * *p , 0.01; ns, not significant

ns
ns
ns
0.407 * *
0.368 *
ns
ns
ns
ns
43.61 * *
0.558
0.312
0.295

Table III.
Regression analysis of
TIC and innovation
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176

5.1 The relationship between TIC and innovation performance

Consistent with the hypothesized model, the findings of this study show that R&D,
resource allocation, learning, and strategy planning capabilities directly improve
innovation performance. The results support literature that these four TICs have a
beneficial impact on overall product performance (Burgelman et al., 2004). For example,
learning is one of the most valuable assets that provides sustainable competitive
advantage (Caloghirou et al., 2004) and active learning is closely associated with
innovation performance (Freeman, 2002). R&D capacities would enhance the firms ability
to cooperate and carry innovation project to success. Resource allocation and strategy
planning capabilities are positively associated with innovation rate and enable firms to
sustain global competitiveness (Yam et al., 2004; Guan and Ma, 2003; Wan et al. (2003)).
These findings are consistent with Yams study that learning, R&D, resource
allocation, and strategy planning capabilities are important to innovation performance.
However, our findings are inconsistent with Yam et al.s (2004) study that marketing
capability is not correlated with innovation performance. This finding shows that
Chinese firms in HK/PRD region are different from that in Beijing. It is possible that most
of the manufacturers in HK/PRD region are perceived that they are competent on their
existing marketing capability that does not draw distinctive advantage on innovation
performance. In fact, the mean value of the marketing capability is the highest among
the others (Table II).
Furthermore, recent literature noted that HK is strong in marketing knowledge to build
close relationship with major customer (Yu, 2005; Hobday, 1995). Yu (2005) argue that HK
manufacturers are able to acquire and adopt foreign technological and marketing
knowledge within their own institutional settings effectively through close customer
relationship. Under original equipment manufacturing (OEM) business, HK electronics
manufacturers can work closely with the customers in order to manufacture a variety of
goods. In order to take advantage of low-cost production, overseas buyers are willing to
send quality control engineers to help ensure quality, delivery, and productivity of the
manufacturers and to assist with purchase of materials of them as well. The customers
also provide the manufacturers information on product design, cost accounting
procedures, marketing, and technology (Chiu and Wong, 2004; Hobday, 1995). HK
manufacturers have to effectively serve the customer in the production line in a lower cost.
With limited resources and small-sized, HK manufacturers also look for business
opportunities actively and efficiently (Yu, 2005). Instead of designing on their own, HK
manufacturers have good knowledge of different market segments and sales forces so that
they can modify existing products in various markets at a lower cost such as VTechs
educational toys and cordless telephones (Yu, 2005). Manufacturers in this region are
common in strong marketing capability so as to efficiently transform the market
know-how in product innovation. This study thus argues that, in this region, firms with
merely strong in this capability cannot lead to distinctive innovation performance.
Inconsistent with the hypothesized model, the findings of the study show that
manufacturing and organizing capabilities are not correlated with innovation
performance. This result is similar to Yam et al.s (2004) study that manufacturing and
organizing capability was found to be unrelated to innovation performance. Despite its
close association with product quality, time-to-delivery and production cost,
manufacturing capability cannot significantly influence a firms innovation
performance because of the firms inability to identify areas of improvements in

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innovation (Bessant and Bucking ham, 1993), and its failure in integrating the
improvements with quality control (Deming, 1982). It may stem from the failure in
strategizing the manufacturing sector, and its inability in matching the process capabilities
with the market requirements in a timely fashion (Hayes and Wheelwright, 1984).
On the other hand, the insignificant relationship between organizing capability and
innovation performance may be due to the negative impact of external coordination in
innovation process. Some argue that manufacturers may fail to develop innovative
products because they are attentive to the needs of current customers (Hamel and
Prahalad, 1994). Katz (2003) argues that customers sometimes ask for familiar products
and encourage the manufacturer not to innovate, as new products usually require the
customer to put in new supporting resources for the product and this would lead to a
waste of some customers existing resources. Similarly, suppliers may provide familiar
ideas to manufacturers for product development in order to protect the value of their
existing resources, such as production capacities and engineering knowledge.
By limiting themselves to the coordination of current customers and suppliers,
manufacturers might restrict their capabilities to develop highly innovative products in
a competitive environment. Depending on the existing customers for new ideas may
stem from the traditional nature of OEM/ODM business in HK manufacturers.
5.2 Current TIC in HK/PRD region
This study employed a tested audit framework to measure the TIC learning, R&D,
resource allocation, manufacturing, marketing, organizing, and strategy planning in
the HK/PRD region (Guan and Ma, 2003; Guan, 2002). By calculating the mean values
of these capabilities, the TIC for the sampled industry is shown in the Figure 2.
Figure 2 shows that the sampled manufacturers are strongest at marketing
capabilities. Most of them agreed that they have built good relationships with their
major customer, provided good performance of after-sale services and known different
product market segments very well. This result is similar to the finding of a previous
study that HK companies are good at marketing (HKTDC, 2000).
However, it is important to note that the resource allocation capability is weakest
among the other TIC elements. This results show that manufacturers in this region are not
good in exploiting resources, such as human resources, capital and technologies/
technique, for technological innovation. In particular, firms strongly agreed that they
cannot provide steady capital supplement in innovation activity. This finding is similar to
other technological innovation studies identified the lack of financial and human resources
as key constraints for innovation (Guan, 2002; Sirilli and Evangelista, 1998).
The electronics industry in the region is also weak at R&D capability, as shown in
Figure 2. The surveyed companies do not have high percentage of R&D personnel in
their company. This can be explained by the fact that many manufacturers are doing
OEM business, which traditionally does not require many R&D personnel. Facing the
changing environments, the manufacturers should migrate from OEM to ODM and
finally to OBM by enhancing their R&D capability.
6. Conclusion
6.1 Academic and managerial implications
Technological innovation plays a critical role in predicting the long-term survival of
organizations (Ancona and Caldwell, 1987). Many well-known leading authorities alike

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have discussed the importance of innovation in determining an organizations success

and global competitiveness (Higgins, 1995; Porter, 1990). Traditionally, only R&D
activities are considered by practitioners to be a major focus of innovation. Recently,
other previous researches have found that emphasizing R&D alone by investing on
R&D activities heavily cannot sustain innovation performance and firms
competitiveness (Yam et al., 2004; Guan and Ma, 2003; Souitaris, 2002; Romijn and
Albaladejo, 2002). Empirical studies in it are insufficient in HK and PRD region,
although the region is being recognized as one of leading manufacturing areas around
the world. This study theoretically and empirically verifies that some TIC do improve
innovation performance while some do not in the region. These more specific findings
provide empirical supports to the field of technology innovation and give new insights
to the managers in the region.
Consistent with the literature, the findings of this study indicate a direct, positive
relationship between TIC and innovation performance. In particular, this study verifies
that learning, R&D, learning, resource allocation, and strategy planning capabilities
directly improves the percentage of sales due to product innovation. R&D and resource
allocation capabilities also improve the rate of new products. This finding provides
specific evidence to support the importance of TIC on innovation (Yam et al., 2004),
especially in a Chinese manufacturing context.
For managers in the region, this finding is important as it identifies that a more
balanced development of multiple TIC is required. While R&D capability is essential to
the success of innovation, our findings show that firms should also emphasize other
innovation capabilities (i.e. learning, resource allocation, and strategy planning) for
better coordination of R&D activities. For example, in order to enhance the percentage
of sale due to technologically innovative products, manufacturers should strengthen
their strategic planning capability, which helps them to identify their internal
strengths and weaknesses as well as external opportunities and threats for formulating
and implementing effective innovation plans. For those manufacturing firms
launching many new products into the market, they should play more efforts on
resource allocation capability. Not only can the capability allow a firm to exploit their
technology resources, including the acquisition of external technologies, technology
information about competitors core technology competence and the prediction of new
technology trends, but it also enables the firm to attach and allocate sufficient human
resources for innovation processes.
6.2 Study limitations
This study had a number of limitations as specified below which also help to identify
potential areas for future studies.
This study used a single key informant for data collection. The underlying
assumption behind this method is that a senior manager, by virtue of his or her
position in the company, is capable of providing opinions and perceptions that can
reflect the companys behaviour (Philips, 1981). In future research, a multiple informant
approach could be adopted. However, the complications of conducting research using
multiple informants and the practical difficulties of using information from this
research should not be underestimated (Philips, 1981).
The cross-sectional data used in the present study may not be useful for identifying
fundamental relationships among the variables. However, as stated by Kenny (1979), the

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careful study of cross-sectional relationships is commonly accepted for testing

fundamental relations. For improving future research, multiple cross-sectional analyses
in different time frames would be used to generalize the findings of this study.
In particular, the relationship between external integration and product innovation
would be a good research topic for the future.
On top of the selected TIC and performance examined in this study, other
capabilities should be investigated as well. For example, absorptive capability,
referring to the ability of firms to acquire, assimilate, and exploit information and
knowledge (Cohen and Levinthal, 1990), has been found to affect innovation
performance (Caloghirou et al., 2004). The absorptive capability thus is a possible
dimension to be added in the study of TICs. Future research will identify more TIC and
examine how these capabilities affect innovation performance, which may contribute
significantly to the field of technological innovation management.

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(The Appendix follows overleaf.)

Technological
innovation
capabilities
183

JSTPC
1,2

Appendix

Variables

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184

Table AI.
Result of reliability test
(n 81).

Learning capability
Your company systematically monitors technology development
trends
Your company assesses technologies relevant to firms business
strategy
Your company encourages work teams to identify opportunities
for improvement
Your company assimilates accessed knowledge
Your company understands firms core capabilities and match it
with market needs
Your company passes lessons learned across boundaries and
time
Your company promotes learning culture and invests on
learning
Overall
R&D capability
Multi-functional departments are involved in concept
development and screening of new product
Your company has highly efficient communication among R&D
personnel
Your company apply advanced designing methods, such as
concurrent engineering
Your company has high quality and quick feedback from
manufacturing to design and engineering
Your company has good mechanisms for transferring
technology from basic research to new product development
Your company has great extent of markets and customers
feedback into innovation process
Your company has high level of investment in new products
Your company has high level of investment in new process
Your company has high percentage of R&D personal in firms
total employment
Overall
Resource allocation capability
Your company can attach importance to human resource
Your company plan human resource in phase
Your company can select appropriate personnel in each
functional department in innovation process
Your company can provide steady capital supplement in
innovation activity
Your company fully use external technologies
Your company understand competitors core technologies
Your company adapt its technology level to changes in external
environment
Overall
Manufacturing capability
Your manufacturing department has great contribution during
the conceptual design stage in innovation process

Mean

SD

a, if item deleted

4.33

1.80

0.95

4.46

1.64

0.95

4.69
4.54

1.73
1.65

0.94
0.94

4.58

1.80

0.94

4.54

1.67

0.94

4.32
4.49

1.80
1.73

0.95
0.95

4.35

1.86

0.97

4.48

1.94

0.96

4.33

1.89

0.96

4.46

1.84

0.96

4.54

1.84

0.96

4.62
4.69
4.69

1.72
1.81
1.79

0.96
0.96
0.97

4.15
4.48

2.09
1.86

0.96
0.95

4.48
4.37

1.90
1.81

0.96
0.95

4.54

1.72

0.96

4.36
4.43
4.62

1.80
1.65
1.71

0.96
0.96
0.96

4.51
4.47

1.83
1.77

0.96
0.97

4.05

1.63

0.94
(continued)

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Variables
Your manufacturing department transforms R&D output into
production
Your company has effectively applied advance manufacturing
methods
Your company has capable manufacturing personnel
Your company has great extent which is continuously improve
manufacturing system
Your company has high level of importance of overall quality
control
Your company has high degree of manufacturing cost
advantage
Overall
Marketing capability
Your company has good relationship management with major
customers
Your company has good knowledge of different market
segments
Your company has highly effective marketing intelligence
systems
Your company has high sales-force efficiency
Your company provides good performance of after-sale services
Your company closely tracks customer satisfaction level
Your company well maintains brand image and corporate image
Overall
Organizing capability
Your company can flexibly adjust the organization structure
Each sub-units in your company gain entity
Your company can handle multiple innovation projects in
parallel
Your company has good coordination and cooperation of R&D,
marketing, and manufacturing department
Your company has good communication between major
suppliers and major customers
Your company has high-level integration and control of the
major functional departments with company
Your company has effective mechanisms to track progress of
innovation process
Overall
Strategy planning capability
Your company has great extent of contingency thinking and
planning
Your company is able to identify internal strengths and
weaknesses
Your company is able to identify external opportunities and
threats
Your company has clear goals
Your company has clear plan a road map of new product and
process with measurable milestones
Your company is highly adapted and responsive to external
environment
Overall

Mean

SD

a, if item deleted

4.41

1.66

0.94

4.21
4.62

1.50
1.60

0.94
0.94

4.64

1.65

0.94

5.06

1.69

0.94

4.54
4.50

1.51
1.61

0.94
0.94

4.95

1.66

0.94

4.77

1.57

0.94

4.35
4.53
4.74
4.72
4.79
4.69

1.68
1.61
1.61
1.45
1.64
1.60

0.94
0.94
0.94
0.94
0.94
0.95

4.93
4.54

1.50
1.27

0.92
0.93

4.51

1.53

0.92

4.32

1.67

0.92

4.65

1.60

0.92

4.33

1.53

0.93

4.31
4.51

1.42
1.50

0.93
0.94

4.22

1.70

0.96

4.53

1.75

0.95

4.65
4.78

1.66
1.68

0.95
0.95

4.62

1.67

0.95

4.49
4.55

1.53
1.67

0.96
0.96

Technological
innovation
capabilities
185

Table AI.

JSTPC
1,2

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186

About the authors

Antonio K.W. Lau is a PhD graduate of the Department of Manufacturing Engineering and
Engineering Management at the City University of Hong Kong. His current research interests are
in the areas of supply chain management and new product development. Antonio K.W. Lau is
the corresponding author and can be contacted at: solkwa@ust.hk
Richard C.M. Yam is an Associate Professor in the Department of Manufacturing
Engineering and Engineering Management, the City University of Hong Kong. Yam is the
founder program leader of the Master of Science and Engineering Doctorate programs in
engineering management at City University. His current research interests are in the areas of
product innovation and technology management and engineering asset management.
Esther P.Y. Tang is Associate Professor of the Department of Management and Marketing,
Hong Kong Polytechnic University. Tang has carried out consultancy work for both public and
private organizations. Her current research interests are environmental impacts of business
activities, and interface between marketing and manufacturing.

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