IT-Enabled Product and Process Innovations in Transition Markets: The Moderating Role of Dysfunctional Competition

Since transition markets are playing an increasingly important role in the global economy and in the international innovation arena, there is a need to understand how IT affects firms’ process and product innovations and ultimately their competitive performance in these markets. Drawing on innovation literature and the IT capabilities portfolio perspective as well as the distinctive environment of the transition markets, we compare and contrast how IT internal integration and IT market integration affect process and product innovations, which in turn lead to competitive performance under different levels of dysfunctional competition. We test our model and hypotheses using data collected from 241 firms in China, one of the largest and fastest growing transition economies. The results reveal how dysfunctional competition shapes the efficacy of ITenabled product and process innovations. We find IT internal integration has a greater positive effect on process innovation and on product innovation, and consequently, competitive performance, when dysfunctional competition is high. In contrast, IT market integration is more effective in influencing process and product innovations when dysfunctional competition is low. Furthermore, when dysfunctional competition is high, it becomes harder for firms to obtain value from their investment in product innovation, while the performance return from process innovation increases. We discuss the implications, for theory and practice, of the role IT integration capabilities have on innovation in transition economies.