Impact of Innovation Effort on Exports from Emerging Market Firms: Limitations Arising from Complementary Resource Constraints

We examine the impact of innovation effort on exports of resource constrained emerging market firms (EMFs), and boundary conditions imposed by complementary tangible and intangible resources on this relationship, using the lens of the Knowledge Based View (KBV). Analysis is based on annualized data from 19,057 Indian firms over the period of 2009-2017, controlling for endogeneity and selection bias (using Heckman correction), firm level controls, year and sectoral fixed effects, within robust Tobit and OLS regressions. Export intensity and R&D intensity are our key dependent and independent variables, respectively. The baseline impact of innovation effort on exports is found to be a concave inverted U-shape, exhibiting decreasing returns. Availability of complementary resources significantly impacts the nature of this relationship by weakening it for more resource constrained firms. Faced with relatively greater scale-related constraints, the impact of innovation effort on exports disappears. Greater process-related constraints weaken the relationship as well. Theoretically, these findings shed light on a nuanced relationship between a firm’s search for knowledge assets and access to foreign markets within resource constrained emerging market contexts. The limitations in the use and applicability of the KBV for EMFs’ internationalization success is highlighted, with suggested directions of future research.