Competition and innovative intentions: A study of Dutch SMEs

Abstract

This paper explores the complex relationship between competition and innovation. Traditional measures of competition using industry statistics are often challenged and found wanting. This paper distinguishes between three types of competitive forces: internal rivalry among incumbent firms in an industry, bargaining power of suppliers, and bargaining power of buyers. Using survey data from 2,281 Dutch firms, we apply new perception-based measures for these competitive forces to explore how competition relates to firms innovative intentions. We also investigate the influence of innovation strategy as a contingency variable. Results show that specific innovative intentions, i.e. to invest in product and process innovation, are related to different competitive forces. Process innovation is correlated with the bargaining power of suppliers, while intentions to invest in product innovation are associated with buyer power. Finally, intended product innovation is related to internal rivalry, but only when firms have no innovation strategy.