How Innovative Activities Impact Firm Performances in Latecomer Countries? An Analysis of Five Manufacturing Clusters from Indian Punjab

Firms engage in innovative activities, either to maintain the status quo or to catch up with the front-runners. Innovation is difficult to comprehend as it may include efforts to introduce something ‘new to the world’ or it may include simply the efforts to introduce something ‘new to the firm’. It is equally difficult to comprehend how the clustered firms located in latecomer countries are coping with the fast technological changes happening within the industry at the global level. Therefore, taking the case of five manufacturing clusters belonging to the Indian state of Punjab, an attempt is made to comprehend the impact of innovative activities on firm performances. We have done a survey for collecting the primary data for different variables reflecting four types of innovations and four types of performance indicators from the firms belonging to bicycles, hand tools & machine tools, pharmaceuticals, sports goods and textile clusters located in the north Indian state of Punjab. The focus on different clusters belonging to a particular region was done with intent to control the broad social, economic, cultural, political and historical aspects of the different clusters. Estimating the structural equation model with partial least-squares method, we found that the impact of process innovation, organizational innovation and marketing innovation is significant for firm innovative performances, production performance, market performance and financial performance. Specifically, we found that the introduction of new machines with advanced production systems, improvements in the manner of doing routine activities, improving product quality and modernization of human management systems within the firms have a positive impact on firm performance.