Business strategies, bureaucratic ties, and firms’ innovation novelty: insights from the World Bank enterprise survey

Abstract

We draw intuitions from the systemic perspective of innovation to develop and test a conceptual model aimed at examining the various factors capable of influencing the novelty of innovations within firms in Visegrad countries. The empirical results based on the analyses of about 2,132 firms revealed that organisational strategies, external collaborations, engaging in research and development, and the legal status of firms marginally influence innovation novelties. Contrary to our expectations, we found that intellectual property rights and bureaucratic ties do not significantly influence innovation novelties. Business cities are also positively correlated with firms’ innovation novelties whilst legal status is not. The main practical implication of the research is that firm managers in the Visegrad Group aiming to improve and sustain the novelty of innovations should consider strengthening their external collaborations as well as having business strategies that must include innovations as well as research and development (R&D). We discuss some implications for theory and policy.

Introduction

Firms are constantly looking for methods to be more cost-effective and responsive to enhance their performance, given the demands of ever-changing external surroundings (Al-Twal et al., 2024). Innovation has become a formidable component of firms’ strategies and policies in the quest for improved competitiveness; it has long remained a plausible goal of firms and national policies (Anderson & Stejskal, 2019a; Boateng & Abaye, 2019; Kiveu et al., 2019; Odei et al., 2021). The ability of firms to adopt innovations in their production process, marketing, and organisation is known to help position them better and sustain their competitive advantage. Engaging in research and development (R&D) has been proven to be one of the most imperative approaches for improving and sustaining firms’ productivity, competitiveness, and innovations (Leung & Sharma, 2021), which has become a key factor of economic growth and social prosperity. Several studies have used various measures for innovation; some measure innovations from both a technological and non-technological standpoint (Odei & Appiah, 2023; Odei & Novak, 2022), with varying degrees of novelty (Diaz-Diaz & De Saá-Pérez, 2012; Majeed & Breunig, 2022). Irrespective of the measures adopted, the consensus is that the invention must be significantly improved and must either be new to the firm or new to the market where the firm operates. The Visegrad Group was created in the early 1990s, right after the collapse of the Soviet Union. It is an agglomeration of neighbouring countries—the Czech Republic, Slovakia, Hungary, and Poland—that began economic transitioning simultaneously. The level of innovativeness of the Visegrad Group is low, usually lagging European Union (EU) averages (Odei & Appiah, 2023). Though innovation has remained low in this group of countries, various governments have committed to improving infrastructure and public support for research and development, which is critical for the successful adoption of innovations. However, the group faces key innovation problems such as the slow overhaul of educational systems to make them technically oriented (Koišová et al., 2021), low firms’ expenditures on research and development, and weak incentives for institutional interactions, among others. These problems among others make the groups’ transitioning into fully fledged knowledge-based economies slow.

Research on firm-level innovations is increasing in the Visegrad Group of countries (see, for instance, Odei & Appiah, 2023). However, the bourgeoning research displays several weaknesses that still limit the complete understanding of the innovation landscape in these countries. First, the measures of innovations adopted in existing studies in these countries have narrowly focused on technological and non-technological perspectives (Cieślik & Michałek, 2018; Odei & Novak, 2022). This means that other measures, such as degrees of novelty, that could help distinguish between innovations new to firms and to the market have not been given enough scholarly attention. Another aspect where existing research show caveats is their neglect of bureaucratic structures in external environment, which could potentially influence the innovation processes through resource and time allocation (Krammer, 2019). Depending on how it is handled, bureaucracy can either promote or impede innovation. Well-organised bureaucratic systems can enhance access to critical information and knowledge within organisations, which is vital for the innovation process (Eckhard, 2021). On the contrary, stringent bureaucratic procedures can slow down decision-making processes, making it challenging for firms to respond swiftly to new opportunities or changes in the market (Potter, 2017). This could hinder the adoption and implementation of innovation activities. Research elsewhere, for instance, by Tian, Wang, Xie, Jiao, & Jiao (2019), concluded that effective bureaucracy positively influences firms’ innovation performance, hence the call for research in these countries to examine the influence of this external relationship. We argue that the neglect of research on bureaucracy means that our knowledge of the regulatory quality in these countries is missing, but it could potentially affect firms’ operations and their innovation search. Furthermore, existing studies on innovations in the Visegrad Group have not focused on analysing business strategies and how they could potentially influence the innovation process (see, for instance, Odei et al., 2021; Odei & Appiah, 2023). We argue that firms especially innovative ones often develop and implement business strategies that could play a critical role in influencing the direction, and success of their innovation efforts. These strategies are closely intertwined with firms’ innovation process and can have a profound impact on their innovation outcomes, therefore their role in the innovation process cannot be ignored. In sum, the relationship between bureaucratic structures, business strategy, and external collaboration in fostering or hindering innovation novelty remains underexplored. The current body of research inadequately addresses how these three factors influence the creation of novel innovations especially in the context of transitioned countries like the Visegrad. This gap in understanding limits the ability of firms to effectively design and implement strategies that involve bureaucratic structures and external collaborations to enhance innovation. The omission of these critical aspects of innovation reduces our understanding of the innovation ecosystem in these economies, highlighting the need for new research that incorporates all these overlooked but critical factors to provide a comprehensive understanding of firm-level innovation. This study addresses these research gaps by examining the influence of bureaucracy, external collaboration, business strategies on firms’ ability to introduce innovation that could be novel to the firm and the market. To fulfil this research aim, we draw intuitions from the systemic perspective of innovation (Johannessen, 2013; Midgley & Lindhult, 2021), which highlights the entire ecosystem in which innovation occurs, emphasising the interconnectedness and interdependence of various elements and actors for sustainable innovation. We develop a conceptual model that aims to assess the influence of business strategies, external collaboration, and bureaucracy on firms’ innovation novelty.

The empirical analysis used data from the World Bank's Enterprise Survey, which involved a sample of small and large firms from the manufacturing and service sectors in Visegrad countries. The study is novel and differs from existing studies as we have shown that bureaucracy in these countries do not significantly influence firms’ abilities to introduce innovative products new to the market and the firm. This result shows that the regulatory quality in these countries is favourable, so firms do not have to spend productive time meeting them. This finding is in line with the systemic perspective of innovation (Johannessen, 2013; Midgley & Lindhult, 2021). Another aspect that makes our research novel and different from existing studies is the measure of innovation used. Previous studies that measured innovations by their degrees of novelty were undertaken in the Czech Republic but not in the three remaining countries (see Odei & Hamplová, 2022). While the measures are the same, the sampled population differs and has greater variability. Our results have also shown that business strategies, especially those on innovations, are likely to contribute to influencing firms’ ability to introduce innovations that could be new to the firm and the market. To the best of our knowledge, there are no existing studies that have explored the relationship between business strategies and degrees of innovation novelty in the Visegrad countries. Our findings, particularly those concerning business strategies and their ability to influence new product introductions and firm innovations, have practical implications for firm managers. Firms in these countries that want to be innovative should consider developing business strategies that can serve as a practical guide for innovation activities and resource allocations. Finally, our results pointed out that external collaboration influences firms’ abilities to introduce inventions that could be new to the firm or the market where the firm operates. This has not received enough scholarly attention in these group of countries, and our result therefore contributes to the growing literature on the importance of external collaboration in spurring novel inventions (Odei & Hamplová, 2022; Storz et al., 2022; Un & Asakawa, 2015). The main practical implication from our findings is that policymakers and firm managers in the Visegrad countries should consider both internal and external factors when developing innovation policies. The main limitation of the paper relates to the pooled cross-sectional data used, which makes it difficult to understand the trend of firm-level innovations in these countries.

The rest of this article is arranged in the following order: section two of the paper is dedicated to reviews and discussion of literature on the concepts of degree of novelty related to new-to-firm and new-to-market innovations and the various determinants influencing them. Section three focuses on the source of data, research methodology, and description of variables used for the empirical specification; section four is devoted to the detailed result discussions pertaining to the previous literature. Section five concludes the research with suggestions for further research, practical and policy implications, and research limitations.

Theoretical background and hypothesis development

Innovation refers to firms and organisations abilities to adopt significantly improved knowledge, ideas, or behaviours, which often result in improved products, processes, or new technologies or organisational management processes (Martínez-Ros, 2019). Innovation has become the most powerful strategic resource that can be utilised by firms to improve their performance and productivity. The sustained improvements in firms’ innovation capabilities are conducive to improving and positioning them better in terms of competitive advantage amidst the rapidly changing environment (Dereli, 2015; Gupta et al., 2013). Firms’ innovation competence lies in their ability to incessantly metamorphose new knowledge and ideas into significantly new products, processes, marketing, and organisational processes to reap more profits (Audretsch & Belitski, 2023). New knowledge helps firms to infuse fresh ideas which could be stagnant internally due to same thinking internally. Innovations could be new to the firm that introduced them, but they could also be new to the market where the firm operates. This means that the innovation could be novel to the firms’ competitors, giving them a temporary competitive advantage in the market. The extent of novelty of innovations helps to distinguish between inventions that are significantly new to the firm that implemented or introduced them and those that are new to the market environment where the firm operates (Odei & Appiah, 2023). The degree of novelty of an innovation is often used to differentiate between major and minor forms of innovation. Based on the degrees of novelty, innovations could be lumped as minor and major; those inventions new to the introducing firm itself are considered minor, and those new to the market where the innovative firm operates is known as major innovations (Odei & Hamplová, 2022).

This research is built on the systemic perspective of innovation and aims to explore the factors capable of influencing firms’ innovation novelties. The systemic perspective of innovation theorises that successful and sustainable innovation depends on firms’ aptitude to organise and incorporate a wide array of internal and external sources of technical and scientific knowledge (Johannessen, 2013; Midgley & Lindhult, 2021). The systemic perspective of innovation is a holistic approach that considers innovation as a complex, interconnected process that comprises various actors, organisations, and elements within a given ecosystem. Since the 1990s, national innovation systems in many countries have focused on the linear innovation model. The linear innovation model posits that firms exclusively rely on internal knowledge; this was pigeonholed by a moderately weak reliance on the assimilation of knowledge from external sources. The linear model of innovation policy primarily focused on providing financial support for firms and the provision of needed R&D infrastructure to stimulate innovation. In recent times, innovation has been considered an open process with a systemic and social disposition that is mainly boosted by external knowledge (Chesbrough, 2017). Firms can acquire external knowledge through collaborating with partners such as higher education institutions, other firms in the market environment, suppliers, and customers. The knowledge acquired from external sources becomes vital for firms’ innovation performance if they develop their absorptive capacities internally through human capital development. We measured innovation using the degrees of novelty, which distinguishes between innovations that are novel to the firm that introduced it and those that are first to hit the market where the firm operates (Odei & Hamplová, 2022; Storz et al., 2022). Since innovation is considered a complex process, the systemic perspective of innovation is employed in this study to propose a model to determine how firms’ businesses strategies, external collaboration, relationships with governments and firm-level and regional controls impact innovation novelty abilities. The new model hypotheses that business strategies, external collaboration, and firms’ relationships with governments affect their aptitude to introduce innovations that could be new to the firm or the market. The new proposed model built on the systemic perspective of innovation theory provides a comprehensive and interconnected framework for analysing firms’ innovation novelty (Midgley & Lindhult, 2021). By considering the broader context, interactions among partners, feedback loops, knowledge flow, regulatory factors, and internal activities, this perspective enhances the ability to assess and understand the novelty of innovations in an integrated approach. This model helps capture the richness and multidimensionality of the innovation processes, hence, makes it a valuable tool for researchers, policymakers, and firm managers seeking to navigate and promote novelty of innovation in the Visegrád Group of countries.

Research on firms’ strategies and how they shape innovations and competitiveness has gained ample scholarly attention because it shapes and guides firm-level activities and performances (Laosirihongthong et al., 2014). A firm's strategy is a set of planned actions and decisions taken or intended to be taken by firms to achieve specific goals and objectives. A business strategy outlines what the firm needs to do to achieve its goals, guide the decision-making process for human capital, and make other vital resource allocations. Innovative firms are expected to include innovations as part of their strategies. These strategies, including those on innovation, guide decisions on how scarce resources are to be utilised to meet businesses’ innovation goals, deliver value, and improve competitive advantage. These firms’ strategies should include an assessment of their competitiveness, technological capabilities, and environment, as well as external threats and opportunities (Čirjevskis, 2019). Firm strategies also address how firms can work to compensate for any gaps in internal and external knowledge as well as outline strategies for improving their innovation competencies. Besides strategies' influence on innovative performance, it could also influence their abilities to influence how they will deal with institutional weaknesses, especially in transition countries (Rodríguez-Pose & Zhang, 2020). It is anticipated that firms’ strategies will broadly involve innovations, and this strategic plan will influence firms’ commitment to improving the innovation process. It will also ensure that firms fully commit resources such as finances and human capital, among others. This could ensure that firms will improve their technological abilities through research and development as well as investments in technology acquisitions, which can increase their competitive advantages. There is, however, limited research that has focused on analysing how different strategies implemented by individual firms impact their innovation capability, and, oftentimes, such studies reach inconsistent results. Akman and Yilmaz (2008), for instance, found that firm strategy could positively influence innovation outcomes. Goedhuys and Veugelers (2012) also concluded that firms’ strategies are positively correlated with successful process and product innovations. We, therefore, summarise the belief that business strategies determine how firms allocate their resources, including financial, human, and technological resources. Innovative firms may tend to allocate a significant portion of their resources to innovation and research and development (R&D) activities. The emphasis on resource allocation to innovation activities enshrined in business strategies could help firms utilise their resources effectively and efficiently to produce goods and services that could be new to implementing firm or the market where the firm sells their products. We therefore hypothesise that:

Hypothesis 1: Firms’ business strategies will be positively related to new to firm and market innovations.

The growing open innovation literature has recognised the significant contributions of external knowledge to firms’ innovation performance and activities (Anderson & Stejskal, 2019b; Odei & Appiah, 2023). External knowledge is fundamental to firms’ innovation outcomes, as it usually balances and refreshes dormant internal knowledge that no longer offers improved benefits to firms. In terms of improving innovation performance, external partnerships are imperative because they enable firms to gain access to economically viable knowledge prevailing in other organisations, which can be absorbed to advance organisational learning and innovation abilities in the long run (Majeed & Breunig, 2022). The open innovation literature has also emphasised that firms benefit from collaborations, and this positively impacts their innovative outputs through three fundamental benefits: risk reduction, knowledge sharing, and swiftness in development (Lassen & Laugen, 2017). Through innovation alliances, each partner can possibly acquire a greater expanse of new knowledge than would have been possible through independent investment. Resource sharing between partners in the synergies becomes one of the potential means of reducing the cost of investments in product development as well as reducing the possible risk of failure (Jimenez-Jimenez et al., 2019). Firms require external knowledge because they may not have the financial muscle to generate it internally because of the exorbitant costs involved. When firms cannot generate this external knowledge due to its high cost, they can cooperate with other firms or organisations by pooling their resources. In addition to the above, collaboration also allows firms to quickly respond to market needs via an increased rate of new product development to be able to meet customer needs. Firms can forge synergies with partners in the market environment (Gesing et al., 2015) or with knowledge depositories such as universities and other public research organisations (Odei & Anderson, 2021; Odei & Hamplová, 2022). The influence of external collaboration diverges based on the type of innovation involved. Fındık and Beyhan (2015) study in Turkey concluded that external collaboration positively influenced product-oriented impacts of innovation, implying that firms that have external partnerships during the innovation process witness improvements in their products ahead of their competitors. Un and Asakawa (2015) also established that R&D partnerships with universities and suppliers positively influence process innovations, whereas other forms of collaboration do not significantly exert any influence. Lassen and Laugen (2017) also found that external collaboration significantly provides different effects on the degree of innovation, and this is dependent on the type of external partners they collaborate with. Based on the conclusions of these studies, we summarise the understanding that external collaborations could be beneficial for firms’ innovations because it is a source of new knowledge and expertise that could contribute to firms’ abilities to introduce new inventions that could be new to the firm and to the market. The systemic perspective aligns with the open innovation concept, which emphasises collaboration and knowledge exchange beyond organisational boundaries. Open innovation can lead to more novel and diverse ideas that could help in inventions that could be new to the firm that implemented it or to the market because it leverages external expertise and resources. We therefore propose our second hypothesis as:

Hypothesis 2: External collaboration is positively associated with inventions new to firm and the market.

Research on bureaucratic ties has gained enough scholarly attention in recent times because of its ability to influence firms' general and innovation performance (Krammer, 2019). Bureaucracy is an important non-market environment for the survival and development of firms. According to Tian et al. (2019), political relations refer to the inherent political connection between firms and an individual who is vested with political power. Governments the world over have been untrusted with several responsibilities, such as vital resource allocation and control, administrative oversight, land and property acquisition, loan guarantees, and partisan policies. They also take on critical duties and responsibilities such as law enforcement, public goods involvement, and regional economic and resilience building. Scholars, however, remain divided about the role political connections could play in firms’ performance. Some scholars believe that the presence of political ties is beneficial, as these connections play significant roles by serving as a means of support for firms (Krammer & Jimenez, 2020). In the context of developing and transitioning economies, firms need to deepen their connections with governments to constantly receive favour, financial resources, and other development opportunities via informal alternative mechanisms such as bribery and corruption due to the ineffectiveness of formal systems of law and investments. This ineffective formal system could result in a situation that will make senior managers spend more of their total productive time dealing with requirements and regulations imposed by governments (Rodríguez-Pose & Zhang, 2020). The more time senior managers spend dealing with draconian requirements and regulations imposed by governments, the less time they devote to concentrating on normal business activities, including innovations. More time spent could also mean that these government regulations are not flexible and straightforward, which could undermine firm performance in general. However, the objective level of these bureaucracies could be perceived differently because firms have different connections with governments or have different levels of experience dealing with governments (Odei & Appiah, 2024). Bureaucracy can facilitate the efficient allocation and utilisation of scarce resources, ensuring that innovation activities are well-funded and supported. Suzuki and Demircioglu (2017) study across several countries concluded that bureaucratic impartiality is significantly and positively related to innovation outputs. Bureaucratic structures provide well-defined guidelines and standardised processes, which can ensure consistent and reliable execution of innovation activities and projects (Best, 2016). On the contrary, research in China by Rodríguez-Pose and Zhang (2020) also revealed that weak regulatory quality ensures that senior management spends much time dealing with government regulations, which strongly hinders firm-level innovations. Based on the findings of these studies, we conclude that strict government requirements and regulations would necessitate significant expenditures by senior management to comply with these regulations. Government regulations could play a significant role in shaping the extent to which firms could generate novelty of innovations. According to the systemic perspective government regulations and policies could either promote or hinder firms’ abilities to introduce products and services (Midgley & Lindhult, 2021), that could be novel to the implementing firm or the market. Based on the study by Suzuki and Demircioglu (2017), we summarise the understanding that when there is impartiality in the bureaucratic environment, it could ensure that firms comply with regulatory standards (Carcelli, 2024), which is crucial for firms to undertake innovations that could be new to the firm or market. Hence, understanding this contextual factor is vital to navigating the regulatory landscape of innovation novelty. We therefore provide our third hypothesis as:

Hypothesis 3: Bureaucracy ties is positively associated with innovation novelty.

Relationships between control variables and innovation novelty

The relationship between firms’ legal status and innovation performance has been well researched (see Nam & Thanh, 2021; Xu et al., 2022). We controlled for legal status because it can affect firms’ abilities to access critical innovation resources, manage risks, attract human capital, and navigate regulatory landscapes, all of which are crucial for innovation (Odei & Appiah, 2023). Firms’ legal status can also influence vital decisions, such as those involving introducing innovations new to the firm and those new to the market ahead of their competitors. Shareholding companies might have unique characteristics that could make them more inclined to introduce innovations new to the firm and the market. The legal status relates to the existing ownership structure, as firm owners play key roles in firms' decisions, including those regarding innovations (Opoku-Mensah & Yin, 2021). In shareholding companies, shareholders essentially own and oversee the affairs of the company, which places certain rights and responsibilities on them. This type of ownership allows shareholders to exercise considerable powers to influence essential operational decisions, including human resources and investing in innovations, among others. Shareholding companies would be more likely to be innovative in comparison to sole proprietors in the sense that numerous individuals or firms come together to own a business. Firms in shareholding partnerships can pool resources and use them to, for instance, influence innovations, so they stand lofty chances of introducing innovations first to the market or to other firms within the same firm. Xu et al. (2022) study among Chinese firms found that major shareholders are likely to engage in short-term benefits and have the habit of supporting financial asset investment but not R&D investment. A related study by Jibir and Abdu (2021) concluded that firms’ legal status positively contributes to stimulating new to market and firm innovations. We summarise the idea that firms’ characteristics, such as their ownership structure, could affect their quest for innovations, and this depends on the motive of the owners. This motive could further influence key investment decisions, such as whether to engage in research and development for innovations.

Knowledge and innovation activities are localised and not uniformly distributed across geographic areas (James et al., 2016). We controlled for business cities because they are proven to influence innovation performance through a combination of human capital concentration, resource and infrastructure availability, co-operative ecosystems, supportive regulatory environments, and cultural dynamics (Dohse et al., 2019; Marchesani et al., 2022). These factors create a favourable environment needed for the continuous generation of innovation. In general, cities are viewed as a creative environment that can greatly assist firms in developing and improving their innovation performance. Clusters of firms in cities (agglomeration) create multiple positive spillover effects and encourage and sustain learning processes that stimulate the production, dissemination, and prompt adoption of new ideas in the long run (Amrin & Nurlanova, 2020; Dohse et al., 2019). Cities, especially business ones, usually abound in knowledge resources and inflows that promote the formation and expansion of knowledge-based firms. Another aspect of the cities that makes them capable of spurring innovations is the cluster of institutions such as higher education and other public research organisations. By their nature, they are knowledge producers as well as human capital developers, so their cluster in cities could promote knowledge accumulation as well as dissemination through their alumni networks. Countries' main business cities are noted to be appropriate locations for firms’ innovations and general performance. Business cities across the world are usually the economic hubs with the highest concentrations or agglomerations, which makes them dense in terms of economic activities (Dohse et al., 2019). They also hyphenate and connect with other countries (Odei et al., 2021). This special attribute of cities means that they enable vibrant interfaces and knowledge interchange within and across regions. The readily available knowledge and physical infrastructure also allow them to access international technologies and knowledge, which could spill over to firms. They are also known to have a high population concentration, which can facilitate knowledge exchange between individuals or between firms and other institutions. The large pool of population, especially a skilled workforce, could increase the city's absorptive capacity, making it able to absorb new knowledge from both within and from abroad. Firms are generally considered to be dependent on the density of specialised human capital, knowledge institutions, suppliers, and a large customer base embedded in cities (Andersson et al., 2019). These special attributes of business cities could make them the preferred locations for innovative firms, which might locate in these cities to take advantage of the positive externalities.

Data and methodology

Data used for the empirical analysis are based on a sample of 2132 enterprises, sourced from the World Bank Enterprise Survey (WBES), conducted between 2018 and 2020. The WBES is jointly conducted by three financial institutions, specifically the European Investment Bank (EIB), the World Bank Group (WBG), and the European Bank for Reconstruction and Development (EBRD). The WBES currently has data on over 200,000 innovative and non-innovative enterprises spanning about 152 countries. The WBES collects data from firms using the sample survey, employing the stratified random sampling technique based on firm size, sectors, and regions. The WBES has a wide array of data spanning innovation novelty, intellectual property rights protection, external collaboration, and firms’ characteristics such as legal status, firm size, etc. This makes the WBES one of the best datasets for analysing firm-level innovations. The final sample consisted of both large and small businesses from both the manufacturing and service sectors, with a breakdown as follows: Czech Republic (502), Slovakia (429), Hungary (805), and Poland (1369). The data were cleaned before the empirical assessment; outliers and missing values were dropped; we also omitted all "don’t know spontaneous" responses, which further shrank the final sample.

To investigate the determinants influencing firms’ innovation novelty in the Visegrad four countries, we employed the quantitative technique that adheres to the positivist epistemology and the objectivity view of reality. The study's cause-and-effect methodology necessitated the employment of an explanatory research design to examine how internal and external antecedents influence firms’ innovation novelties (Fox & Bayat, 2007). For the empirical estimation approach, this study used the logistic regression model. The logit model was chosen due to the binary nature of the dependent variable, thus innovation novelty. In the WBES, firms were asked to report on innovations that are significantly new to the firm that introduced them or to the market; this helped us determine the extent of the novelty of inventions. The logistic regression model allowed us to predict firms’ innovations novelties using various determinants. We were able to distinguish between important predictors of innovation novelties and determine the direction of these relationships by using this model. We used the average marginal effects from the initial analysis to compute the effects of variations in the dependent variable that are caused by a unit change in any of the predictors (Lüdecke, 2018). The conventional formula for the logistic regression model is provided by Tranmer and Elliot (2008):

$$ {\text{Logit }}\left( P \right) \, = {\text{ Log }}[P/ \, ({1} - P)], $$

(1)

where Logit (P) = the logit (log of the odds ratio); P = the probability of introducing innovation novelties; and 1-P = the probability of not introducing innovation novelties.

The marginal effect for the logit model is then given as:

$$\frac{\partial \text{Pr}\left(y-1\right)}{\partial {x}_{k}}-\varnothing \left(x\beta \right)\beta x,$$

(2)

where:

$\text{Pr}\left(y-1\right)$ represents the introducing innovation novelties, $\varnothing \left(x\beta \right)$ represents the standard normal density computed at $x$ β, $\beta x$ is weighted by a factor $f$ that depends on the values of regressors in $x$

However, the logit model could be biased in the presence of endogeneity in the variables. This situation could imply that the correlation amongst the covariates and the error term will not be equal to zero (E (X, u) ≠ 0), leading to inconsistent estimation results (Wooldridge, 2010). One possible way to overcome this econometric issue is to use instrumental variables. The instrumental variable probit model was used in the second stage of the analysis to check for potential endogeneity in the data. We anticipate that there is a possibility that one or more of our covariates could be endogenous and could lead to unreliable results. The estimation of the endogenous probit model was done using Newey's two-step option. The independent and control variables used in the models were carefully selected based on existing innovation literature. Table 1 provides the definitions of both the dependent, independent and control variables used in the empirical specification.

Table 1 Description of variables used in the model estimation

Results and discussion

We begin the discussion of the empirical results to determine the various factors driving innovation novelties with the descriptive statistics. Table 2 reports the descriptive statistics and the Kendall's tau-b correlations for the variables employed throughout this study. On average, about 18% of the sampled firms reported introducing innovations that were significantly different, either to the firm or the market. About 37% of the firms confirmed that they have business strategies that guide their operations. The results also show that the extent of each firm’s collaboration in the sample is very low; just about 9% of firms reported having external collaborations with other entities and institutions. This low level of institutional collaboration has been confirmed by other studies (see Vlckova & Thakur-Weigold, 2019; Odei & Hamplová, 2022). Furthermore, a little over 15% of these firms reported engaging in research and development activities for their innovations. The levels of intellectual property rights protection in the sampled firms were also very low; approximately 6% of firms reported having patents or trademarks. Regarding the time firm managers spend to meet government regulations, we found that it was less; on average, it was confirmed to be about 12% of all top managers’ time. Regarding the legal status of firms, the results show that about 27% of these firms are classified as shareholding companies with non-traded shares or shares sold privately. Finally, about 20% of the sampled firms are in business cities. The correlations between the different independent variables and the dependent variable measured with innovation novelty were also found to be low. The Kendall's tau-b results show that the coefficients are low and were all statistically significant at the 0.1 and 0.05 levels, indicating that potential collinearity problems are reduced. Nevertheless, to accomplish discriminant validity, valid measures of single constructs must not be highly correlated among themselves (Bagozzi et al., 1991). We used the F-ratio to test whether the canonical correlations between our constructs are zero. The F value of a variable reveals its statistical significance in group discrimination; that is, it is a measure of how much a variable contributes uniquely to the prediction of group membership. The dimension for the discriminant validity was grouped by countries, leading to three dimensions. The result showed that the canonical correlations for the three dimensions are all statistically significant at the 0.05 level. The canonical correlations for the three dimensions are 0.466, 0.270 and 0.114, respectively. We therefore reject the null hypothesis that there is a small canonical correlation which is equal to zero. Since the correlations are low, and all the F-tests are significant, it implies that all the dimensions are significant and are needed to describe the differences between the three groups of countries.

Table 2 Descriptive statistics and Kendall's tau-b correlations

The results of the regression models in Table 3 show that there is a positive and statistically significant association between business strategies and innovation. This result indicates that there is compelling evidence within the sample supporting hypothesis 1. With regard to Hypothesis 2, which sought to establish whether external collaboration influences firms’ innovation novelties, we found more evidence that there is a statistically significant relationship between external collaboration and innovation novelty. Engaging in research and development was positively correlated with innovation novelty. We also found that intellectual property rights and bureaucracy do not significantly influence innovation novelty. The results on the insignificant association between bureaucracy and innovation mean that hypothesis 3 is rejected. The results of the firm characteristics show that the legal status of firms is negatively correlated with their abilities to offer significantly improved products and services that are either new to the firm or the market. Firms in business cities are also less likely to have greater ability to introduce significantly new products and services, either to the firm that introduced them or to its market rivals.

Table 3 Marginal effect results of factors driving innovation novelty

The positive relationship between external collaboration and innovation novelty is as expected and coherent with the open innovation literature. As shown by the marginal effect results, firms that collaborate with other R&D partners are more likely to increase their innovation novelties marginally by about 12 percentage points. This can be explained as follows: firms are limited in their potential to internalise all necessary knowledge and capabilities (Rauter et al., 2019). As shown in the literature review section, innovation collaborations allow firms to access new knowledge, expertise, and resources that they cannot generate by themselves, and this could be vital in the innovation process. External innovation collaborations allow firms to search for and incorporate external knowledge into new or ongoing innovation activities, and this can enable them to significantly introduce products and services that could be new to the firm itself or its competitors. Without these forms of collaboration, the likelihood of novel innovations could be reduced because firms' knowledge bases would be stacked. The choice of collaborating partners influences overall firm innovation performance; for instance, firms’ collaborations with knowledge repositories such as universities will enable them to access scientific knowledge that can be absorbed in the innovation process. This result is consistent with the findings of Majeed and Breunig (2022) study on Australian firms, which concluded that external collaboration is significantly correlated with increased levels of novelty in innovation. Yan et al. (2020) also concluded that external collaboration with other industries' customers is a positive signal for innovation novelty. Research in the Czech Republic by Odei and Hamplová (2022) also concluded that firms’ collaborations with universities and other public research organisations increase the likelihood of major and minor innovations.

The findings also confirmed that R&D has only a minor impact on the likelihood of innovation novelty, as measured by both new-to-firm and new-to-market product innovation. This result is as expected and in line with the conclusion of several studies (see Gómez et al., 2020). Research and development activities have been demonstrated to have the highest marginal effect on innovation novelty, implying that it is likely to increase by 22 percentage points. R&D has been proven to be a catalyst for innovations, and firms increasingly invest in R&D to enhance their innovation performance, which allows them to introduce innovative products and services that could be novel to the firm or its market rivals (Leung & Sharma, 2021). Internal R&D activities by local firms play a bifold role in creating new knowledge as well as expanding absorptive capacity, which could all favour innovation novelty introduction. This finding is in line with those of Díaz-Díaz and De Saá-Pérez (2012), Gómez et al. (2020), and Odei and Hamplová (2022), emphatically supporting Hypothesis H3.

The results show that there is a positive and statistically significant relationship between business strategies and innovation novelty. The marginal effect result also shows that firms with business strategies are 3 percentage points more likely to increase their innovation novelties. Having business strategies with an emphasis on innovation could serve as a guide and yardstick to determine whether the firm is on track to achieve innovations. Business strategy could also inform the firm's choices, especially those related to internal and external resources such as information and new knowledge. Having a business strategy will allow managers to overcome operational obstacles to remain focused on innovation resources to produce high-innovation novelties. Hajar (2015) found that business strategies have a positive and statistically significant influence on innovation, which could lead to improved firm performance. Wu (2013) also concluded that business strategies, especially those focused on R&D, are a vital determinant of overall organisational innovation performance.

The results also revealed that the time top management spent to meet government regulations do not significantly influence innovation novelties within the sampled firms. This result is surprising, however, a look at the descriptive statistics in Table 1 shows that top managers of the sampled firms spend on average 12% of their time meeting government regulations. This result means that firms spend less time on government regulations, this will allow them to allocate their resources (both financial and human) towards activities that directly contribute to their core business objectives, such as market expansion among others. The more time senior managers spend on government regulations, the less time they must devote to innovation activities, which can affect overall innovation performance. However, our results mean that government regulations in these countries are not stringent, which is one possible reason why senior firm managers do not spend much time meeting them. As a result, top management can be expected to encourage management innovation by spending less time on regulatory compliance. The results on senior management time spent on meeting government regulations differ from the finding of Krammer (2019) study conducted in Central Asia and Eastern Europe, who concluded that bureaucracy has a significantly negative influence on firms' overall innovation performance. The contradictory result indicates that the regional variations could play key roles in how bureaucracy impacts firm-level innovations.

The results of the control variables show that business cities marginally reduce the prospects of innovation novelties in the sampled firms; they are likely to marginally decrease it by 6 percentage points. Main business cities such as Prague, Brno, Budapest, Bratislava, Warsaw, Ostrava, etc., have enhanced constant interactions, transaction costs, and informal knowledge flows that could influence the tendency of firms to benefit from city spillovers to introduce innovation novelties. However, as shown by the descriptive statistics in Table 1, less of these firms are in these business cities, so they do not benefit from advantages business cities provide. The possible reason for the negative relationship could be that these business cities are able to attract top talent, but they also create severe competition for qualified labour (Glaeser & Resseger, 2010). Because skilled people may be attracted away by higher compensation or better prospects elsewhere, this rivalry can make it difficult for firms to retain or attract innovative personnel. Also, the cost of operating in business cities is typically high, resulting in increased operational costs for businesses (Zhai et al., 2022). These increased costs may limit the resources available for R&D, innovative projects, or risk-taking. Because of the large stakes involved, firms in business cities may become risk averse. The need to maintain profitability and shareholder value might deter innovation because it often involves uncertainty and the possibility of financial losses in the short term. The results further show that the legal status of firms is negatively related to innovations, implying that firms’ innovations decrease with their legal status. According to the marginal effect results, legal status reduces innovation novelties by 5 percentage points. This result shows that the legal status of a firm does not positively contribute to spurring innovation novelties. This result shows that the ownership structure within the sampled firms is not likely to positively drive their abilities to introduce innovations that are either new to the firms themselves or to their market rivals. Our result on legal status contradicts the findings of Jibir and Abdu (2021), as they found a positive correlation. The results also revealed that intellectual property rights protection measured with patents or trademarks marginally increase innovation novelty. This result resonates the findings of Verhoeven et al., (2016) and Guo et al., (2019), who also found that intellectual property rights protection positively influences firms’ innovation.

Robustness checks

We evaluated the robustness of the models and tested the various hypotheses using two other estimation methods, i.e. instrumental variable models and introducing additional sets of control variables. First, we introduced alternative sets of control variables that have been proven by the innovation literature to influence firm-level innovations. Following the literature, we included years of managerial experience (Odei & Appiah, 2023), firm size (Dunyo & Odei, 2023; Shefer & Frenkel, 2005), and formal training (Odei & Hamplová, 2022). The results in Table 4, model 1, show that R&D and patents marginally increase innovation novelty by 25 and 9 percentage points, respectively, while legal status and business cities marginally reduce it by 5 percentage points. When we introduced business strategies in Model 2, we found that business strategies marginally increased innovation novelty by 3 percentage points. This result confirms hypothesis 1. In model 2, we find support for hypothesis 2, as the results show that external collaboration marginally increases innovation novelty by 12 percentage points. As shown in model 4, we did not find support for hypothesis 3, as the bureaucracy was statistically insignificant. As shown by these results, we validate all the hypothesised relationships described above, as the results do not vary when additional control variables are included. Based on the results of our robustness test, which involved including different additional sets of control variables into the models, we conclude that our key findings remain unchanged.

Table 4 Marginal effect analysis with additional controls

Next, we used instrumental variable models which are well-known to be suitable for endogeneity tests. The robustness tests involved assessing the existence of possible endogeneity in the variables, which could contaminate our findings, leading to inconsistent conclusions. Although the carefully selected covariates measure innovation novelty, as shown by the first stage results, we believe that the potential presence of endogeneity could contaminate the results. We believe that R&D activities could potentially influence firms’ business strategies, external collaborations, and abilities to acquire patents. We verified whether the research and development considered endogenous could be tested for exogeneity. Following the literature (see Odei & Appiah, 2023), we used the instrumental variable (IV) probit model with Newey's two-step estimation approach to test for possible endogeneity in our variables. For the endogenous variable as described above, we used research and development with innovation novelty as a dependent variable while maintaining the remaining covariates. The Wald test of exogeneity measures whether our data support or reject the null hypothesis of exogeneity. The Wu–Hausman F test and Durbin–Wu–Hausman Chi-square test were further used to assess endogeneity to support the Wald test result. We further tested the strength of the selected instrument, as weak instruments could result in econometric issues that can cause biased estimates of covariates (Stock et al., 2002). Weak instruments can also cause the estimator's distribution to deviate considerably from a normal distribution. This was tested using the Stock–Yogo F statistics as well as the Cragg–Donald Wald F statistic.

The results of the robustness tests are shown in Table 5. According to the Wald test result, Chi-squared (2.61), prob > Chi-squared = 0.106. This result is statistically insignificant at the 95% level, suggesting that we can accept the null hypothesis that the R&D is considered exogenous and not endogenous. This result was further confirmed by both the Wu–Hausman F test and the Durbin–Wu–Hausman Chi-squared test with p-values greater than the 0.05 significant level. Based on these results, we deduce that our variables are not impacted by potential endogeneity concerns. The test F statistic is 23.68, exceeding the Stock–Yogo recommended threshold of 10. The Cragg–Donald f-test statistic based on the relevance test of the instrument is 49.10, which is greater than the recommended cut-off value of 10; hence, we reject the null hypothesis that the instrument is weak. The under-identification test using the Anderson canon. corr. LM statistic shows that the chosen instrument is relevant and the overidentifying constraints are valid. Since there are no endogeneity issues in the variables, there is no need for IV models. We do not discuss the IV results since in the absence of endogeneity, the logit model discussed in the first stage above, are considered consistent and robust.

Table 5 Robustness tests

Conclusion

Firms’ abilities to introduce new and significantly improved products that are either new to the firm itself or its market rivals are considered important because they give firms the competitive edge. The existing evidence suggests that the nexus between innovations and firms’ performance is highly complex, although several studies have concluded that innovation drives firms’ success. However, there is no consensus among scholars as to how innovation should be measured, but several studies have focused on the technological and non-technological perspectives. Other measures of innovation, such as degrees of novelty, have received less scholarly attention. This research filled this gap by drawing insight from the systemic perspective to develop a simplified model to assess the effects of business strategies, government–business relations, external collaboration on innovation novelty among firms in Visegrad countries. Using pooled cross-sectional data from firms listed in the Czech Republic, Slovakia, Hungary, and Poland and employing a combination of three estimation approaches, our study revealed that just 18% of firms reported introducing innovations that were entirely new to themselves and their market competitors. The empirical results also showed that patents, R&D activities, business strategies, and external collaboration marginally influence firms’ innovation novelties. The study did not find statistical evidence to support the role of government–business relations in influencing innovation novelties in the sample, contrary to expectations. Finally, we found that the control variables, such as the legal status and business cities, marginally decrease firms’ aptitudes to introduce innovations that could be new to the firm or to market ahead of their competitors. These findings are robust, as they passed two well-known robustness tests.

Theoretical implications

The findings of the study make significant theoretical contributions and extend the growing literature on bureaucracy in the context of transitioned and catching-up countries such as the Visegrad Four. Theoretically, the results revealed that bureaucracy, measured by the time senior managers spend meeting government regulations, do not significantly influence the abilities of firms to introduce innovation novelties. This signifies that these firms spend less time meeting government regulations. In most transition countries, where there are stringent regulations, firms spend time they could devote to the innovation process to meet government regulations (Tian et al., 2019). Our result signifies that regulatory compliance in these countries are not stringent, so they are favourable for firms’ operations. This allows firms to devote enough time which could be spent on meeting government regulations on other firm activities. This result differs from existing studies in emerging economies (see, Krammer, 2019). This result is in line with the systemic perspective of innovation theory from the context of transitioned economies perspective, as relationships are integral part of the theory. Second, the findings of this research indicate that external collaboration marginally increases firms’ abilities to introduce innovation that could be new to the firm or the market. The result is a significant addition to the conventional explanation on the importance of external collaboration to the innovation process (e.g., Lassen & Laugen, 2017; Midgley & Lindhult, 2021; Odei & Hamplová, 2022). This result indicates that firms in these group of countries can derive new knowledge, expertise and resources from external collaboration which could improve their abilities to introduce innovations that could be novel to both the firm and the market. This finding is in line with the systemic perspective literature. Thirdly, the results have shown that business strategies could significantly influence firms’ investment decisions, especially those on innovations and R&D. This result calls for firms aiming to be innovative to have a business strategy that focuses on investments in R&D and innovation as well as all related activities. Finally, this research used data from the Visegrád Group of countries, thus Poland, Slovakia, Hungary, and the Czech Republic, which have all transitioned into market economies, to show that external collaboration and having business strategies, especially those with a focus on innovation, can serve as enablers for innovation novelties in these transitioned market firms that often lag in innovations. Accordingly, the study contributes to research on firm-level innovation in the Visegrád Group (Odei & Appiah, 2023) by examining whether business strategies, external collaboration, and bureaucracy in transitioned country-based firms are likely to spur innovations that are new to the firm or the market. This is an important addition to the growing literature on innovation because very little scholarly attempts have been dedicated to investigating how these factors influence innovation novelties, especially in transitioned economies such as the Visegrád Group. This addition provides a rich transitioned market context for theory building.

Managerial and policy implications

Drawing on the key outcomes of this study, several policy pathways can be proposed for firm managers and policymakers in the Visegrád Group. First, the finding that external collaboration positively influences innovation novelty in transitioned countries suggests several policy implications aimed at fostering innovation. Policymakers in these countries could offer tax incentives, grants, and subsidies to incentivise firms, research institutions, and scientists to engage in open innovation projects with both domestic and foreign partners. These incentives can help offset the costs and risks associated with collaboration, which usually constrain such interactions. Developing robust R&D infrastructure is essential for attracting especially foreign partners who could complement for any shortfalls in the domestic ecosystem. Policymakers should invest in research institutions and infrastructure such as laboratories, and technology parks that provide the necessary resources and support for innovation and its related activities. Firm managers in these countries are encouraged to actively seek out partnerships with both domestic and international organisations that bring diverse perspectives, resources, and expertise to the innovation process. This might include knowledge repositories such as universities, research institutions, start-ups, as well as other established firms in related or complementary industries. Second, leveraging the positive impacts of business strategies on the novelty of innovation is very crucial for firms in catching up economies such the Visegrád Group. Firm managers should ensure that their existing and new business strategies are aligned with their innovation goals. This may involve revisiting and possibly adjusting strategies to prioritise innovation and novelty, especially in transitioned countries where the business environment might be evolving rapidly. Third, the finding that bureaucracy does not significantly influence innovation novelty in transitioned countries could also have several policy implications. Policymakers may need to re-evaluate the efficiency and relevance of bureaucratic structures in fostering innovation. The fact that bureaucracy in these countries does not significantly impact innovation novelty, could mean that there might be opportunities to streamline the bureaucratic processes to ensure that they do not negatively affect firms’ innovation outcomes. Policymakers could therefore shift their attention to other factors that could influence innovation novelty, such as investment in research and development (R&D), human capital development, access to capital, and fostering a culture of intellectual property right protection. Emphasising these aspects of the innovation environment could potentially lead to an improvement in innovation outcomes. While bureaucracy has been proven to not directly affect innovation novelty, it can still hinder efficiency and agility within firms (Luo & Junkunc, 2008). Firm managers should strive to streamline bureaucratic processes to reduce unnecessary obstacles and enhance overall organisational performance. Managers could direct their attention towards other direct drivers of innovation, such as organisational culture, leadership style, resource allocation, and collaboration mechanisms. Emphasising these aspects could ensure that they yield greater returns in fostering and sustaining innovation.

Research limitations and future directions

A few limitations have been acknowledged in this paper, which could provide directions for further research. First, the research was based on pooled cross-sectional datasets. We recommend that future studies use longer panel datasets when they become available to fully capture the dynamics and factors influencing innovation novelties. Secondly, our study is limited to these four transitioned and catching-up countries. Future studies need to be done in other transition economies, especially in Europe and other parts of the world, to further study the possibilities of generalising this study's findings. Lastly, we analysed the influence of bureaucracy on all firms; however, firms could have different relationships with governments, and this will require further research to examine which firms could be most affected by government regulations.