Modelling two-way relationship between innovation and internationalisation: does learning by export matter?

Abstract

This study has picked up an essential question for the Indian pharmaceutical industry, whether innovation and internationalisation follow a two-way relationship during the product patent regime. This study analyzes the role of product, process and variety of innovation on exporting activities of 168 pharmaceutical firms from 2006 to 2013. For this purpose, this study applies two-stage least square probit and tobit model on innovation and export equation separately. The results show the feedback relation between export and innovative performance while there is a differential effect of product and process innovation on exporting. The results strongly support the learning-by-exporting and product-life cycle hypothesis. European origin firms are more likely to be innovative and export-oriented, while U.S. origin firms influence the firms' innovative performance. Business strategy should take account of benefits from the dynamic interaction of innovative and exporting activities and make their strategic decisions carefully.

Keywords:

• Product innovation
• process innovation
• internationalisation
• learning-by-export
• product-life cycle

JEL CODE::

• O3 F0 F1

Disclosure statement

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

Notes

1 This is a form of market entry where parent company establishes the subsidiary in other countries to achieve the higher level of control over the market.

2 The product patent in India was not allowed before 2006 while product patent information is only available till 2013 published by Controller General of Patents, Designs and Trademarks, Government of India (CGPDT). Therefore, due to the data constraint, we cannot extend the period after 2013.

3 1st January 2005 product patent is available for medicine, drug, chemical processes and food (IPO)

4 Changes in the country’s policies due to change in the world economic order (formal or informal).

5 pp. 187–188, 10th Edition.

6 We have taken size, age, profit after tax to sale, and import to sale ratio for first stag estimation to get an instrument of export variables that is fitted value while size research and development intensity, age, profit after tax to sale ratio and royalties & technical fee to sale ratioto get an instrument of innovation variables.

7 In short, matching estimators impute the missing potential outcomes of treated individuals (i.e., what would have happened had the treatment not occurred) by using the outcomes of individuals with similar values of “relevant” pre-treatment variables or covariates, but which were not exposed to treatment (i.e., using the outcome of untreated individuals that were similar to treated individuals before the treatment along a number of appropriate dimensions)”.

Additional information

Notes on contributors

Mohd Shadab Danish

Mohd Shadab Danish is a full-time Ph.D. scholar (Economics) at the School of Humanities and Social Sciences, Indian Institute of Technology (IIT) Indore. He obtained M.Phil in Economics from the University of Hyderabad. His research interest covers valuation of intellectual property rights and technology management.

Salman Haider

Salman Haider is a full-time Ph.D. scholar (Economics) at School of Economics, University of Hyderabad. His area of interest is energy economics, technological innovation. He has published research work in the high impact factor journal.

Madan Dhanora

Madan Dhanora is a full-time Ph.D. scholar (Economics) at the School of Humanities and Social Sciences, Indian Institute of Technology (IIT) Indore. His research interest covers competition and market structure. He has published his work in some reputed journal such as Economic Modelling and Economics of Innovation and New Technology

Ruchi Sharma

Dr. Ruchi Sharma (Ph.D.: IIT Kanpur) is an Associate Professor at School of Humanities and Social Sciences, Indian Institute of Technology Indore. She has worked as an Economist with Tata Services Limited. She has also worked at IIT Delhi and held a visiting position at IIM Indore. Her research areas are the Economics of Innovation, Patent Policy and Technology Transfer (FDI and Licensing). She has received grants from Indian Council of Social Sciences Research (ICSSR) for research projects and Ministry of Human Resource Development for organising GIAN courses. She has published research papers in the international journals of repute and has presented her work in international conferences held at the University of Illinois and Oxford University. She was awarded the Kusuma Young Faculty Incentive Fellowship at IIT Delhi.