| By: |
Ghosh, Arghya (School of Economics, Australian School of Business at the University of New South Wales);
Kato, Takao (Department of Economics, Colgate University);
Morita, Hodaka (School of Economics, Australian School of Business at the University of New South Wales) |
| Abstract: |
Does competitive pressure foster innovation? In addressing this important
question, prior studies ignored a distinction between discrete innovation
aiming at entirely new technology and continuous improvement consisting of
numerous incremental improvements and modifications made upon the existing
technology. This paper shows that distinguishing between these two types of
innovation will lead to a much richer understanding of the interplay between
firm incentives to innovate and competitive pressure. In particular, our model
predicts that, in contrast to previous theoretical findings, an increase in
competitive pressure measured by product substitutability may decrease firms'
incentives to conduct continuous improvement, and that an increase in the size
of discrete innovation may decrease firms' incentives to conduct continuous
improvement. A unique feature of this paper is its exploration of the model's
real-world relevance and usefulness through field research. Motivated by
recent declines in levels of continuous improvement in Japanese manufacturing,
we conducted extensive field research at two Japanese manufacturing firms.
After presenting our findings, we demonstrate that our model guides us to
focus on several key changes taking place at these two firms; discover their
interconnectedness; and finally ascertain powerful underlying forces behind
each firm’s decision to weaken its investment in traditional continuous
improvement activities. |
| Keywords: |
Competitive Pressure, Continuous Improvement, Discrete Innovation, Field Research, Location Model, Product Substitutability, Small Group Activities, Technical Progress |
| JEL: |
L10 L60 M50 O30 |
| Date: |
2006–12–08 |
| URL: |
http://d.repec.org/n?u=RePEc:cgt:wpaper:104-27&r=tid |