‘Anti-extortion’ mechanism of indigenous innovation by technologically backward firms: evidence from China

ABSTRACT

Aiming at the strategic behaviour in ‘technology make-or-buy decisions’ in the real economy, this study develops a Cournot competition model with endogenous technological level, by comparing the technology acquisition cost of technologically backward firms under different technology acquisition strategies, we theoretically analysed the ‘anti-extortion’ mechanism of indigenous innovation by technologically backward firms, and the relationship between indigenous innovation and technology imports is empirically tested by using the data of Chinese industrial enterprises above designated size. We show that indigenous innovation can significantly enhance a firm's bargaining power, and the technology acquisition strategy of simultaneous technology imports and indigenous innovation can not only reduce the technology imports cost but also reduce the indigenous innovation cost. Therefore, only by indigenous innovation based on technology imports, can firms enhance their market competitiveness.

KEYWORDS:

• Technology innovation
• indigenous innovation
• technology imports
• make or buy

JEL CODE:

• O31
• O32
• C71
• C78

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This work was supported by Xi’an science and technology project: Research on innovation and entrepreneurship, industrial development policies and planning − countermeasures to enhance the core competitiveness of Xi’an science and technology innovation corridor [grant number: 201805072RK3SF6(17)]; and Shaanxi province soft science key project: Policy research on accelerating the implementation of innovation driven development strategy in Shaanxi Province [grant number: 2016KRZ003].

Notes on contributors

Yuhuan Jin

Yuhuan Jin is a PhD candidate at Xi’an Jiaotong University, majoring in Finance and Banking. She has participated in professor Zhang’s projects, her works have appeared in Sustainability, Journal of Harbin University of Commerce and Journal of Sichuan University of Science & Engineering.

Sheng Zhang

Sheng Zhang is a professor and PhD supervisor at Xi’an Jiaotong University, his current research interests are in the areas of scientific and technological innovation, public administration and innovation management. His works have appeared in Global Economic Review, Journal of Knowledge Management, and Sustainability.

Jochen Bigus

Jochen Bigus is a professor and PhD supervisor at Freie Universität Berlin, his current research interests are in the areas of accounting and corporate finance/corporate governance, accounting with private firms, auditors’ liability and independence. His works have appeared in European Accounting Review, Review of Law & Economics, Accounting & Business Research.