Subcontracting and firm growth: disentangling the effects of innovation type, level, and appropriability

ABSTRACT

This article investigates how innovation matters for the growth of subcontracting and non-subcontracting firms. In particular, it explores whether the effects of innovation type, level, and appropriability on firm growth differ between subcontractors and non-subcontractors. Data on Korean firms in the manufacturing sector are analysed. The impact of subcontracting on firm growth is found to be insignificant. In addition, the positive effect of the process innovation level on firm growth is found to be relatively greater for subcontractors, while the positive effect of the product innovation level on firm growth is found to be relatively greater for non-subcontractors. Innovation appropriability significantly increases firm growth for subcontractors only, not for non-subcontractors. These findings imply that firm-level heterogeneities in the suppler-buyer relationship, innovation goals and novelty, and the effectiveness of innovation protection jointly influence the impact of innovation on firm growth.

KEYWORDS:

• Subcontracting
• firm growth
• product innovation
• process innovation
• appropriability

JEL CLASSIFICATION:

• O30
• O32
• L20
• L21
• M10

Disclosure statement

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

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Notes

¹ Subcontractors are suppliers that usually produce components or subassemblies of end products for contractors (i.e. buyers or customers) with strong bargaining power.

² Innovation novelty is measured on a 0- to 3-point scale: 3, 2, 1, and 0 indicate the first innovation in the global market, the first in the domestic market, other innovations, and non-innovators, respectively. Innovation appropriability is the average value of the effectiveness, measured on a 0- to 3-point scale, of four protection methods: intellectual property rights (IPRs), trade secrecy, design complexity, and lead time (Cohen 2010).

Additional information

Funding

This study was not funded. The data of this study was provided by the Science and Technology Policy Institute (STEPI). It is available upon request.