The Influence of Environmental Factors on Product Innovations in Emerging Markets: The Institutional Theory Perspective

This study addresses how environmental factors in emerging markets affect product innovation properties, categorized as frugality, sociality, and technological sophistication. A questionnaire survey among Japanese overseas subsidiaries in 13 emerging countries was conducted to collect data on environmental factors and new product innovation characteristics. Hierarchical OLS regression analysis was employed to estimate the influences. The results reveal that companies in emerging markets tend to adopt frugality, sociality, and technological sophistication innovation when consumers have low purchasing power, institutional voids exist, and resources are available, respectively. Traditional innovation literature has been built on the assumption of consumer affluence and resource abundance. However, the findings might not apply to the context of emerging markets owing to environmental constraints in these markets. This study is the first to empirically show the influence of environmental circumstances on firms' innovation strategies. The issue of generalizability may exist because of the limited number of samples collected from firms originating in one country (i.e., Japanese overseas subsidiaries). However, this study provides a framework to better understand how the innovation decisions of firms operating in emerging markets may vary depending on environmental factors. This study provides critical insights into how firms should adapt their innovation strategies to the market environment.