The Determinants of Sustainable Innovation Expansion Strategy: the Case Study of Companies from a Declining Industry

Abstract

Stimulation and improvement of innovative development is an extremely important component of economic growth in an economy, along with the companies’ competitiveness in stagnating industries, which is especially relevant for companies at the maturity stage of the life cycle, where the risk of transition to the decline stage is highest. Without new developments and a sustainable innovation strategy, a company loses its leading position in the industry and misses new opportunities, leading it to the stage of stability and decline. Thus, it is important to study the factors that contribute to R&D intensity and encourage innovations in detail. This study investigates the impact of high level and quality of companies’ patent activity
on their financial potential in order to maintain stable innovation performance in the medium term. The sample comprises companies from the printer and camera sector between 2007 and 2020. The determinants of innovation expansion that characterize the technological readiness and market potential of firms to maintain their leading position in a highly competitive market are identified, using a case study method using the example of Canon and its competitor Xerox. The data are collected from Bloomberg and Orbis Patent Database. The results show that while high innovation activity is an important driver of growth, it does not always lead to better financial performance in the earlier stages of the life cycle. The study contributes to the literature by examining different characteristics of innovation activity and life cycle stages through the lens of external economic changes, which brings transparency and clarity in understanding the possible problems that may result from using already disclosed innovations of competitors as well as disclosing one’s own intellectual property rights. The study proves that the greatest effect of innovation activity is observed in companies whose R&D expenditures are close to the industry average values along with diversification of revenue. The results of the study can help policy makers, managers and shareholders to build effective corporate governance to achieve strategic goals and minimize the risks of making wrong management decisions in R&D investments.