New product development and sustainable performance of Chinese SMMEs: The role of dynamic capability and intra-national environmental forces

Abstract

Despite a growing research interest in innovation strategies i.e. new product development, very few studies explore how the regional environmental mechanism is inherent in the link between new product development and sustainable business performance of small and medium manufacturing enterprises (SMMEs) in Asian countries, due to high-velocity business environments. To address this research gap, the study integrates the dynamic capability perspective, and the institutional and entrepreneurship theory in the investigation of how the distinct regional characteristics of the intra-national market in which SMMEs are embedded, along with the dynamic capability of SMMEs, influence the linkage between new product development and sustainable firm performance. Using China as the research setting, we test the research model empirically, based on 1321 samples of SMMEs selected from a nationwide survey. The new findings indicate that an SMME's regional institutional forces, regional entrepreneurial intensity and dynamic capability moderate the effects of new product development on firms' sustainable performance by mitigating the inherent inadequacy of and reliance on firm-specific resources by SMMEs. The new findings also provide the research and managerial implications for SMMEs from Asian economies conducting new product development strategies.

Introduction

Innovation provides a plausible explanation for any organization's ability to sustain its competitive advantage (Damanpour, 1991) in an intensively competitive business environment (Ndubisi, Dayan, Yeniaras & Al-hawari, 2019). Moreover, sustainability orientation adoption can be a critical explanatory factor for firms' differentials in sustainable performance (Claudy et al., 2016), particularly in high-velocity business environments (Kranz et al., 2016). Sustainability-orientation enables enterprises to increase efficiencies regarding new product attributes, new product design, or manufacturing processes (Adams et al., 2016). Sustainability-oriented small businesses in intensively competitive and dynamic business environments pursue increased innovation (Ndubisi et al., 2019) and new product development, enhanced commitment to the creation of superior sustainable practices, leading to sustainable performance (Cheng, 2020).

Asian economies as emerging new markets are some of the world's most dynamic markets and small and medium manufacturing enterprises (SMMEs) have played a very important role in their economic growth and development (Budhwar et al., 2016; Ndubisi, 2008; de Sousa Johnson and Liu, 2011). These Asian SMMEs face intensive market competition and complex operational issues attributed to the high-velocity business environment of Asian countries such as China. Competition, technologies, government policies, products and consumers' attitudes are highly uncertain, and few competitive advantages can last in a high-velocity business environment (Eisenhardt and Martin, 2000; Kranz et al., 2016). Therefore, to survive in such an environment, organisations need to make strategic decisions, such as new product development (NPD) carefully and quickly (Li et al., 2019).

Asian SMMEs are particularly vulnerable to high-velocity environments, as they often have only limited firm resources e.g. technologies, finances and human resources, with which to respond to the challenges of the external business environment (Budhwar et al., 2016; Ndubisi, 2008; Lopes de Sousa Jabbour et al., 2019, Vargo and Seville, 2011). A new product can provide an SMME with control over more diverse assets and quick access to new markets (Oliveira et al., 2018; Sahi et al., 2019). Thus, it would be critical for Asian SMMEs to engage in NPD to obtain competitive advantages and synchronicity with their business environments in the face of both opportunities and threats (Ozer, 2006; Petersen et al., 2005; Yu et al., 2020).

In this study, we focus on Chinese SMMEs as valuable objects with which to investigate the impacts of a firm's home regional characteristics on its innovation strategy and value creation behaviour i.e. via NPD practices (Abdulrahman et al., 2014). Despite considerable research in the literature on the NPD of Asian SMMEs, the results remain inconclusive and few studies examine the characteristics of high-velocity environments and intra-national differences (e.g. Sheng et al., 2013; Yu et al., 2020). The NPD of SMMEs and the impacts of home regional characteristics on a firm's innovation strategy is a particularly under-researched area and recent studies have called for further research into the impacts of a firm's regional operational environment on its strategic behaviours (Chung et al., 2016; Meyer and Peng, 2016).

Prior studies have focused on the firms' innovation behaviour and suggested that product innovation is associated with firms' performance and competitive advantages. For example, some of the studies (e.g. Kim et al., 2013; Sheng et al., 2013) have posited that technology-oriented practices would help develop firms’ new products. However, others argue that the effects of NPD rely on firms' attributes, resources and the external business environment (e.g. Artz et al., 2010; Ndubisi et al., 2019; Newbert, 2007; Yu et al., 2020; Newbert, 2007; Yu et al., 2020). In the case of China, there is relatively scant literature on the impacts of intra-national regional differences e.g. the characteristics of the regional institutional and entrepreneurship environment and their effects on the NPD of SMMEs.

China presents an important and suitable context for examining the mechanism of the NPD of SMMEs, both theoretically and practically. China has been one of the world's fastest-growing economies for over 30 years and has demonstrated rapid growth in many sectors due to the dramatic pace of its economic reforms, making it one of the world's most dynamic and high-velocity markets (Easterby‐Smith et al., 2008; Li et al., 2019). Considering the economic significance of Chinese SMMEs embedded in a unique social and institutional background, regional-level institutional and entrepreneurship environmental factors, in particular, could be more appropriate than other measures for examining the economic impacts of institutional development on firms' behaviour i.e. NPD (Kusnadi, Yang, & Zhou, 2015; Meyer and Peng, 2016).

Therefore, this study aims to explore how the regional institutional forces, regional entrepreneurial intensity and dynamic capability of an SMME support or sustain its financial performance (henceforth, firm performance or performance) by integrating the dynamic capability perspective and the institutional and entrepreneurship theory.

Our paper makes several contributions to a greater understanding of the NPD and performance of SMMEs from Asian economies.

Firstly, we contribute to theory advancement in literature by developing a research model for the mechanism of NPD, integrating the dynamic capability perspective and the institutional and entrepreneurship theory, and exploring the impacts of institutional and entrepreneurship contexts and firm dynamic capability on the relationship between NPD and performance of SMMEs.

Secondly, we offer a more detailed understanding of the boundary conditions under which SMMEs’ regional development, including the institutional and entrepreneurship context, influences the mechanism of NPD in firm performance. In this regard, our study focuses on the moderating roles of regional institutional development, regional entrepreneurship intensity and firm dynamic capability on the relationship between NPD and firm performance.

We further explore and validate a configurational effect empirically by showing how a firm's dynamic capability and an institutional and entrepreneurship context impact upon the effects of NPD on firm performance. Besides, while an SMME's dynamic capability may unlock its potential to increase the firm's competitive advantages, external context effects can help it to exploit resources more effectively. To this end, we adhere to more recent advances of the capability-based theory (e.g., Newbert, 2007; Ndubisi et al., 2019) by identifying a missing link between the development of dynamic capability and its exploitation, thus affecting a firm's product innovation strategies i.e. NPD.

Thirdly, this study contributes to developing an important theoretical issue by focusing on intra-national differences at a regional level in the context of China. The study examines the effects of regional institutional and entrepreneurship environments on firm performance and therefore contributes to the growing body of literature on intra-national institutional differences (Meyer and Peng, 2016; Peng and Lebedev, 2017).

The remainder of the paper is organised as follows: Section 2 reviews the related literature and develops related hypotheses; Section 3 presents a description of the research methods – data, measurements and variables; Section 4 presents the main empirical findings; Section 5 concludes with a discussion of the theoretical contribution of this research and related managerial implications; Section 6 presents the research limitations and future research directions.