Continuous Improvement and Competitive Pressure in the Presence of Discrete Innovation

33 Pages Posted: 20 Mar 2012

See all articles by Arghya Ghosh

Arghya Ghosh

UNSW Australia Business School, School of Economics

Takao Kato

Colgate University - Economics Department; IZA Institute of Labor Economics

Hodaka Morita

Hitotsubashi University - Institute of Economic Research

Date Written: February 27, 2012

Abstract

Does competitive pressure foster innovation? Technical progress consists of numerous small improvements made upon the existing technology continuous improvement and innovative activities aiming at entirely new technology (discrete innovation). Continuous improvement is often of limited relevance to the new technology invented by successful discrete innovation. By capturing this interplay, our model predicts that, in contrast to previous theoretical findings, an increase in competitive pressure measured by product substitutability may decrease firms' incentives to conduct continuous improvement. Continuous improvement had been regarded as an important source of strength in Japanese manufacturing until the 1980s. However, several studies have found that levels of continuous improvement have recently decreased in a number of Japanese manufacturing firms. Through field research at two Japanese firms, we demonstrate the real-world relevance and usefulness of the model which offers new insights on possible mechanisms behind the declining focus on continuous improvement in Japan.

Keywords: competitive pressure, continuous improvement, discrete innovation, field research, location model, product substitutability, small group activities, technical progress

JEL Classification: L10, L60, M50, O30

Suggested Citation

Ghosh, Arghya and Kato, Takao and Morita, Hodaka, Continuous Improvement and Competitive Pressure in the Presence of Discrete Innovation (February 27, 2012). UNSW Australian School of Business Research Paper No. 2012-17, Available at SSRN: https://ssrn.com/abstract=2020094 or http://dx.doi.org/10.2139/ssrn.2020094

Arghya Ghosh (Contact Author)

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

Takao Kato

Colgate University - Economics Department ( email )

13 Oak Drive
Hamilton, NY 13346
United States
315-228-7562 (Phone)
315-228-7033 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Hodaka Morita

Hitotsubashi University - Institute of Economic Research ( email )

2-1 Naka Kunitachi-shi
Tokyo 186-8306
Japan

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