Skip to main content

Advertisement

SpringerLink
Log in

The variable effects of dynamic capability by firm size: the interaction of innovation and marketing capabilities in competitive industries

  • Published:
International Entrepreneurship and Management Journal Aims and scope Submit manuscript

Abstract

Although investments in marketing and innovation capabilities theoretically help firms to compete in dynamic markets and enhance performance, company size has a strong influence on whether this is the case. In a test of a proposed conceptual model, this study of 692 small, medium, and large enterprises found that large firms prospered from building dynamic capabilities under conditions of high industry competitiveness, while investments in innovation and marketing individually diminished small firms’ performance. The effect was mixed for medium-size firms. In small enterprises, however, dynamic capability proved to be crucial in order to withstand competition. Therefore, taking into account these firms’ limited resources, managerial efforts should be focused on the integration of marketing and innovation capabilities, because each capability alone does not have a significant positive impact on performance. In medium-sized enterprises, the support of marketing capability is required to raise profitability under conditions of high industry competitiveness; otherwise, innovation would not lead to actual profits. For large enterprises, industry competitiveness was found to be a less serious threat to performance, and instead is a catalyst to the development of capabilities, suggesting that managers of such firms should focus on building long-term strategic advantages.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3
Fig. 4

Similar content being viewed by others

References

  • Aghion, P., Dewatripont, M., & Rey, P. (1999). Competition, financial discipline and growth. The Review of Economic Studies, 66(4), 825–852.

    Article  Google Scholar 

  • Ahn, S. (2002). Competition, innovation and productivity growth: A review of theory and evidence. Unpublished OECD Economics Working Paper. Organisation for Economic Co-operation and Development.

  • Ali, A., Klasa, S., & Yeung, E. (2009). The limitations of industry concentration measures constructed with compustat data: implications for finance research. Review of Financial Studies, 22(10), 3839–3871.

    Article  Google Scholar 

  • Artz, K. W., Norman, P. M., Hatfield, D. E., & Cardinal, L. B. (2010). A longitudinal study of the impact of R&D, patents, and product innovation on firm performance. Journal of Product Innovation Management, 27(5), 725–740.

    Article  Google Scholar 

  • Atuahene-Gima, K. (2005). Resolving the capability: Rigidity paradox in new product innovation. Journal of Marketing, 61–83.

  • Audia, P. G., Locke, E. A., & Smith, K. G. (2000). The paradox of success: an archival and a laboratory study of strategic persistence following radical environmental change. Academy of Management Journal, 43(5), 837–853.

    Article  Google Scholar 

  • Barreto, I. (2010). Dynamic capabilities: a review of past research and an agenda for the future. Journal of Management, 36(1), 256–280.

    Article  Google Scholar 

  • Barreyre, P. Y. (1978). The management of innovation in small and medium-sized industries. International Studies of Management and Organization, 7(3&4), 76–98.

    Google Scholar 

  • Bass, F. M., Bruce, N., Majumdar, S., & Murthi, B. (2010). Wearout effects of different advertising themes: a dynamic Bayesian model of the advertising-sales relationship. Marketing Science, 26(2), 179–195.

    Article  Google Scholar 

  • Bettiol, M., Di Maria, E., & Finotto, V. (2012). Marketing in SMEs: the role of entrepreneurial sensemaking. International Entrepreneurship and Management Journal, 8(2), 223–248.

    Article  Google Scholar 

  • Bobillo, A. M., Sanz, J., & Gaite, F. T. (2006). Innovation investment, competitiveness, and performance in industrial firms. Thunderbird International Business Review, 48(6), 867–890.

    Article  Google Scholar 

  • Botosan, C. A., & Stanford, M. (2005). Managers’ motives to withhold segment disclosures and the effect of SFAS No. 131 on analysts’ information environment. The Accounting Review, 80(3), 751–772.

    Article  Google Scholar 

  • Bourgeois, L. J. (1980). Strategy and environment: a conceptual integration. Academy of Management Review, 5(1), 25–39.

    Google Scholar 

  • Cáceres, R., Guzmán, J., & Rekowski, M. (2011). Firms as source of variety in innovation: influence of size and sector. International Entrepreneurship and Management Journal, 7(3), 357–372.

    Article  Google Scholar 

  • Cetindamar, D., Phaal, R., & Probert, D. (2009). Understanding technology management as a dynamic capability: a framework for technology management activities. Technovation, 29(4), 237–246.

    Article  Google Scholar 

  • Chauvin, K. W., & Hirschey, M. (1993). Advertising, R&D expenditures and the market value of the firm. Financial Management, 22(4), 128–140.

    Article  Google Scholar 

  • Christensen, C. M., & Bower, J. L. (1996). Customer power, strategic investment, and the failure of leading firms. Strategic Management Journal, 17(3), 197–218.

    Article  Google Scholar 

  • Datta, D. K., Guthrie, J. P., & Wright, P. M. (2005). Human resource management and labor productivity: does industry matter? Academy of Management Journal, 48(1), 135–145.

    Article  Google Scholar 

  • Day, G. S. (1994). The capabilities of market-driven organizations. The Journal of Marketing, 58(4), 37–52.

    Article  Google Scholar 

  • DeFond, M. L., & Park, C. W. (1999). The effect of competition on CEO turnover. Journal of Accounting and Economics, 27(1), 35–56.

    Article  Google Scholar 

  • DeSarbo, W. S., Di Benedetto, C. A., & Song, M. (2007). A heterogeneous resource based view for exploring relationships between firm performance and capabilities. Journal of Modelling in Management, 2(2), 103–130.

    Article  Google Scholar 

  • Elfenbein, D. W., Hamilton, B. H., & Zenger, T. R. (2010). The small firm effect and the entrepreneurial spawning of scientists and engineers. Management Science, 56(4), 659–681.

    Article  Google Scholar 

  • Engel, E., Hayes, R. M., & Wang, X. (2003). CEO turnover and properties of accounting information. Journal of Accounting and Economics, 36(1), 197–226.

    Article  Google Scholar 

  • Ettlie, J. E. (1983). Organizational policy and innovation among suppliers to the food-processing sector. Academy of Management Journal, 26(1), 27–44.

    Article  Google Scholar 

  • Feeny, S., & Rogers, M. (2003). Innovation and performance: Benchmarking Australian firms. Australian Economic Review, 36(3), 253–264.

    Article  Google Scholar 

  • Fosfuri, A., & Giarratana, M. S. (2009). Masters of war: Rivals’ product innovation and new advertising in mature product markets. Management Science, 55(2), 181–191.

    Article  Google Scholar 

  • Freel, M. S. (2000). Do small innovating firms outperform non-innovators? Small Business Economics, 14(3), 195–210.

    Article  Google Scholar 

  • Gu, W., & Tang, J. (2004). Link between innovation and productivity in Canadian manufacturing industries. Economics of Innovation and New Technology, 13(7), 671–686.

    Article  Google Scholar 

  • Harris, M. S. (1998). The association between competition and managers’ business segment reporting decisions. Journal of Accounting Research, 36(1), 111–128.

    Article  Google Scholar 

  • Helfat, C. E. (2007). Dynamic capabilities: understanding strategic change in organizations. Malden: Wiley-Blackwell.

    Google Scholar 

  • Helfat, C. E., & Peteraf, M. A. (2003). The dynamic resource-based view: capability lifecycles. Strategic Management Journal, 24(10), 997–1010.

    Article  Google Scholar 

  • Hornych, C., & Schwartz, M. (2009). Industry concentration and regional innovative performance: empirical evidence for Eastern Germany. Post-Communist Economies, 21(4), 513–530.

    Article  Google Scholar 

  • Hou, K., & Robinson, D. T. (2006). Industry concentration and average stock returns. The Journal of Finance, 61(4), 1927–1956.

    Article  Google Scholar 

  • Hult, G. T. M., Hurley, R. F., & Knight, G. A. (2004). Innovativeness: its antecedents and impact on business performance. Industrial Marketing Management, 33(5), 429–438.

    Article  Google Scholar 

  • Hunt, S. D., & Morgan, R. M. (1995). The comparative advantage theory of competition. The Journal of Marketing, 59(2), 1–15.

    Article  Google Scholar 

  • Hunt, S. D., & Morgan, R. M. (1996). The resource-advantage theory of competition: dynamics, path dependencies, and evolutionary dimensions. The Journal of Marketing, 60(4), 107–114.

    Article  Google Scholar 

  • Joshi, A., & Hanssens, D. M. (2006). Advertising spending and market capitalization. University of California: Unpublished Working Paper.

    Google Scholar 

  • Karuna, C. (2007). Industry product market competition and managerial incentives. Journal of Accounting and Economics, 43(2), 275–297.

    Article  Google Scholar 

  • Ketchen, D. J., Jr., Hult, G. T. M., & Slater, S. F. (2007). Toward greater understanding of market orientation and the resource-based view. Strategic Management Journal, 28(9), 961–964.

    Article  Google Scholar 

  • Kotabe, M., Srinivasan, S. S., & Aulakh, P. S. (2002). Multinationality and firm performance: the moderating role of R&D and marketing capabilities. Journal of International Business Studies, 33(1), 79–97.

    Article  Google Scholar 

  • Krasnikov, A., & Jayachandran, S. (2008). The relative impact of marketing, research-and-development, and operations capabilities on firm performance. Journal of Marketing, 72(4), 1–11.

    Article  Google Scholar 

  • Majumdar, S. K. (2010). Does competition enhance performance? entry policy and efficiency patterns in telecommunications markets. Info, 12(4), 25–38.

    Article  Google Scholar 

  • Maritan, C. A., & Peteraf, M. (2007). Dynamic capabilities and organizational processes. In dynamic capabilities: understanding strategic change in organizations. Malden: Blackwell Publishing.

    Google Scholar 

  • McAlister, L., Srinivasan, R., & Kim, M. C. (2007). Advertising, research and development, and systematic risk of the firm. Journal of Marketing, 71(1), 35–48.

    Article  Google Scholar 

  • Melville, N., Gurbaxani, V., & Kraemer, K. (2007). The productivity impact of information technology across competitive regimes: the role of industry concentration and dynamism. Decision Support Systems, 43(1), 229–242.

    Article  Google Scholar 

  • Menguc, B., & Auh, S. (2006). Creating a firm-level dynamic capability through capitalizing on market orientation and innovativeness. Journal of the Academy of Marketing Science, 34(1), 63–73.

    Article  Google Scholar 

  • Miller, D., & Chen, M. J. (1996). The simplicity of competitive repertoires: an empirical analysis. Strategic Management Journal, 17(6), 419–439.

    Article  Google Scholar 

  • Mithas, S., Tafti, A., Bardhan, I., & Mein Goh, J. (2012). Information technology and firm profitability: mechanisms and empirical evidence. MIS Quarterly, 36(1), 205–224.

    Google Scholar 

  • Moorman, C., & Slotegraaf, R. J. (1999). The contingency value of complementary capabilities in product development. Journal of Marketing Research, 36(2), 239–257.

    Article  Google Scholar 

  • Morgan, N. A., Vorhies, D. W., & Mason, C. H. (2009). Market orientation, marketing capabilities, and firm performance. Strategic Management Journal, 30(8), 909–920.

    Article  Google Scholar 

  • Muller, A., Välikangas, L., & Merlyn, P. (2005). Metrics for innovation: guidelines for developing a customized suite of innovation metrics. Strategy & Leadership, 33(1), 37–45.

    Article  Google Scholar 

  • Nath, P., Nachiappan, S., & Ramanathan, R. (2010). The impact of marketing capability, operations capability and diversification strategy on performance: a resource-based view. Industrial Marketing Management, 39(2), 317–329.

    Article  Google Scholar 

  • Ngo, L. V., & O’Cass, A. (2012). In search of innovation and customer-related performance superiority: the role of market orientation, marketing capability, and innovation capability interactions. Journal of Product Innovation Management, 29(5), 861–877.

    Article  Google Scholar 

  • O’Driscoll, A., Carson, D., & Gilmore, A. (2000). Developing marketing competence and managing in networks: a strategic perspective. Journal of Strategic Marketing, 8(2), 183–196.

    Article  Google Scholar 

  • Otero-Neira, C., Lindman, M. T., & Fernández, M. J. (2009). Innovation and performance in SME furniture industries: an international comparative case study. Marketing Intelligence & Planning, 27(2), 216–232.

    Article  Google Scholar 

  • Palmer, T. B., & Wiseman, R. M. (1999). Decoupling risk taking from income stream uncertainty: a holistic model of risk. Strategic Management Journal, 20(11), 1037–1062.

    Article  Google Scholar 

  • Pavlou, P. A., & El Sawy, O. A. (2011). Understanding the elusive black box of dynamic capabilities. Decision Sciences, 42(1), 239–273.

    Article  Google Scholar 

  • Porter, M. E., & Sakakibara, M. (2004). Competition in Japan. The Journal of Economic Perspectives, 18(1), 27–50.

    Article  Google Scholar 

  • Praveen, S. K., Lilien, G. L., & Wilson, D. T. (1993). Industrial innovation and firm performance: a re-conceptualization and exploratory structural equation analysis. International Journal of Research in Marketing, 10(4), 365–90.

    Article  Google Scholar 

  • Qian, G., & Li, L. (2003). Profitability of small- and medium-sized enterprises in high-tech industries: the case of the biotechnology industry. Strategic Management Journal, 24(9), 881–887.

    Article  Google Scholar 

  • Rogers, M. (2004). Networks, firm size and innovation. Small Business Economics, 22(2), 141–153.

    Article  Google Scholar 

  • Ruiz-Ortega, M. J., & García-Villaverde, P. M. (2008). Capabilities and competitive tactics influences on performance: implications of the moment of entry. Journal of Business Research, 61(4), 332–345.

    Article  Google Scholar 

  • Rush, H., Bessant, J., & Hobday, M. (2007). Assessing the technological capabilities of firms: developing a policy tool. R&D Management, 37(3), 221–236.

    Article  Google Scholar 

  • Scherer, F. M., & Ross, D. (1990). Industrial market structure and economic performance (3 ed.): Houghton Mifflin Company.

  • Slater, S. F., Olson, E. M., & Hult, G. T. M. (2006). The moderating influence of strategic orientation on the strategy formation capability–performance relationship. Strategic Management Journal, 27(12), 1221–1231.

    Article  Google Scholar 

  • Song, M., Droge, C., Hanvanich, S., & Calantone, R. (2005). Marketing and technology resource complementarity: an analysis of their interaction effect in two environmental contexts. Strategic Management Journal, 26(3), 259–276.

    Article  Google Scholar 

  • Srinivasan, S., Pauwels, K., Silva-Risso, J., & Hanssens, D. (2009). Product innovations, advertising and stock returns. Journal of Marketing, 73(1), 24–43.

    Article  Google Scholar 

  • Szymanski, D. M., Bharadwaj, S. G., & Varadarajan, P. R. (1993). An analysis of the market share-profitability relationship. The Journal of Marketing, 53(3), 1–18.

    Google Scholar 

  • Tang, J., & Le, C. D. (2007). Multidimensional innovation and productivity. Economics of Innovation and New Technology, 16(7), 501–516.

    Article  Google Scholar 

  • Teece, D. J. (2007). Explicating dynamic capabilities: the nature and microfoundations of (sustainable) enterprise performance. Strategic Management Journal, 28(13), 1319–1350.

    Article  Google Scholar 

  • Teece, D., & Pisano, G. (1994). The dynamic capabilities of firms: an introduction. Industrial and Corporate Change, 3(3), 537–556.

    Article  Google Scholar 

  • Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal, 18(7), 509–533.

    Article  Google Scholar 

  • Verrecchia, R. E., & Weber, J. (2006). Redacted disclosure. Journal of Accounting Research, 44(4), 791–814.

    Article  Google Scholar 

  • Vorhies, D. W., Morgan, R. E., & Autry, C. W. (2009). Product-market strategy and the marketing capabilities of the firm: impact on market effectiveness and cash flow performance. Strategic Management Journal, 30(12), 1310–1334.

    Article  Google Scholar 

  • Wang, C. L., & Ahmed, P. K. (2007). Dynamic capabilities: a review and research agenda. International Journal of Management Reviews, 9(1), 31–51.

    Article  Google Scholar 

  • Weerawardena, J. (2003). The role of marketing capability in innovation-based competitive strategy. Journal of Strategic Marketing, 11(1), 15–35.

    Article  Google Scholar 

  • Wiggins, R. R., & Ruefli, T. W. (2005). Schumpeter’s ghost: is hypercompetition making the best of times shorter? Strategic Management Journal, 26(10), 887–911.

    Article  Google Scholar 

  • Yang, C. C., Marlow, P. B., & Lu, C. S. (2009). Assessing resources, logistics service capabilities, innovation capabilities and the performance of container shipping services in Taiwan. International Journal of Production Economics, 122(1), 4–20.

    Article  Google Scholar 

  • Yuming, Z., & Desheng, L. (2010). Public R&D subsidies, firm innovation and firm performance - Empirical evidence from listed companies in China’s SME board. Paper presented at the E-Business and E-Government (ICEE), 2010 International Conference on.

Download references

Acknowledgments

The authors would like to thank the anonymous reviewers for their valuable comments and suggestions to improve the quality of the paper. This work was supported by the Ministry of Science and Technology of Taiwan under Grant NSC 102-2410-H-004-239.

Author information

Authors and Affiliations

  1. Graduate Institute of Technology, Innovation and Intellectual Property Management, National Chengchi University, No. 64, Sec. 2, ZhiNan Rd., Wenshan District, Taipei, 11605, Taiwan

    Don Jyh-Fu Jeng

  2. Institute of International Management, National Cheng Kung University, 1 University Rd., Tainan, 70101, Taiwan

    Artur Pak

Authors
  1. Don Jyh-Fu Jeng
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Artur Pak
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Don Jyh-Fu Jeng.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Jeng, D.JF., Pak, A. The variable effects of dynamic capability by firm size: the interaction of innovation and marketing capabilities in competitive industries. Int Entrep Manag J 12, 115–130 (2016). https://doi.org/10.1007/s11365-014-0330-7

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11365-014-0330-7

Keywords

Search

Navigation