26th International Association for Management of Technology Conference - IAMOT 2017

Innovation is commonly recognized as the practice of implementing an idea which wholly encompasses series of processes in a firm. At the middle of the series, manufacture resides and connects R&D with marketing activities. We regard that manufacture acts out ‘a bottle neck’ which can either leverage or retard a firm’s innovation output, depending on its capability. This paper, therefore, addresses on a firm’s manufacturing capability and its roles on innovation rather than focus on R&D and patenting activities. Since literatures point out that quality management programs improve management practice, production process, employee skill; we use ISO9000, the widest used quality program withstanding management fashions as a proxy to examine 1) how quality improvement contributes to a firm’s manufacturing capacity, 2) does the improvement eventually turn into increase in a firm’s innovation output? We develop a formula based on Cobb-Douglas Production Function to compare manufacturing capacities between ISO certificated firms and non-ISO certificated firms. Later, we obtain the elasticity calculated from the formula as a proxy of a firm’s capacity, and make derivation of the production function to test the relationship of R&D with sale growth. Finally, we improve the patents-R&D formula by taking into account the elasticity value to test the relationship of R&D with the numbers of patent applicants. We shall compile data from small and medium hi-tech companies registered in Growth Enterprise Market of China, ISO accredited bodies, and patent applicant database. The results would shed light on how quality management program up-lifts innovation and enables a firm to stay competence, which is beneficial to practitioners and policy.