Disruptive Innovation in the Context of China : How weak institutions can be conducive for innovation

In recent years, a growing body of literature has found that the institutional context of firms matters for innovation and that more developed institutions are positively correlated with technological innovation, while weaker institutional regimes in transition economies like China have a detrimental effect. However, in recent years, transition economies and emerging markets have become increasingly important as centers of research and development (R&D). This is especially true for the development of good-enough, no-frills products that initially respond to local customer demands, which have the potential to be marketed globally as disruptive innovations.

Few previous studies have taken a systematic institutions-based view on why and how the institutional context of transition and emerging markets influences the emergence of this type of innovation. Taking an institutions-based perspective, this paper uses evidence from four high technology companies operating in China to show that in the case of low-end disruptive innovation, the institutional context of transition economies is actually conducive, as inadequate institutions (e.g. insufficient enforcement of intellectual property rights) matter less for disruptive innovation, while other characteristics of transition economies benefit innovation.