« Product Innovation, Product Diversification and Firm Growth: Evidence from Japan’s Early Industrialization »

ECONOMICS & DECISION SCIENCES DEPARTMENT

Speaker : Serguey BRAGUINSKI (University of Maryland)

HEC Campus - Building T - Room T015

« Product Innovation, Product Diversification and Firm Growth: Evidence from Japan’s Early Industrialization »

 (with Atsushi Ohyama, Tetsuji Okazaki, Chad Syverson)

Abstract :

We bring together product innovation and product diversification often treated by separate literature streams in a single framework, and we examine the interaction between these two types of expanding a firm’s product portfolio and how they are related to firm growth. The empirical context is provided by a unique data set on Japan’s cotton spinning industry at the turn of the last century, containing firm-level information on various product varieties and machines used to produce those, in a universe of firms followed for over 20 years, almost since the industry inception.

Introducing new innovative products outside of the previously feasible set involves removing the “supply-side constraint” by investing in new types of machines and technologies, with a high degree of outcome uncertainty. Firms that take steps in this direction tend to first introduce innovative products on experimental basis. The decision to conduct such experiments turns out to be a key for firm growth because it not only provides opportunities to capture the market in “high-end” products in case the experiment is a success, but also contributes to expanding the number of product varieties the firm can offer in the previously known product range. Looking at long-term (20-plus years) outcomes, the right tail of the firm size distribution comes to be dominated by firms that moved into technologically challenging innovative products first, and then successfully applied their newly acquired “high-end” technical competence to diversifying the product portfolio across the spectrum.