The more the better? Relational governance in platforms and the role of appropriability mechanisms

Journal of Business Research 108 (2020) 62–73

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The more the better? Relational governance in platforms and the role of appropriability mechanisms Qi Zhong, Yaowu Sun

T

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Business School, Hunan University, No. 13, Lushan Road, Yuelu District, Changsha, Hunan Province 410082, China

ARTICLE INFO

ABSTRACT

Keywords: Relational governance Joint planning Joint problem solving Appropriability mechanism Product innovation

This paper explores the mechanism by which relational governance affects product innovation and the moderating role of legal and technological appropriability mechanisms. An empirical study of questionnaire survey data on 121 high-tech platform leading firms in China found that the two dimensions of relational governance have different impacts on product innovation. Joint planning positively affects product innovation, while joint problem solving exhibits an inverted U-shaped relationship with product innovation. Second, while the appropriability mechanism plays a moderating role in the above process, there are differences in the moderating roles played by different appropriability mechanisms. Intellectual property rights strengthen the impact of joint planning on product innovation, while contracts and interface standardization weaken the inverted U-shaped relationship between joint problem solving and product innovation.

1. Introduction Under the continuous integration of high-end manufacturing and information technology, with leading firms as the core, the platform business model of connecting supply networks is subverting the traditional method of product innovation. New integration and transformation are shifting competition between firms to competition between platforms. Therefore, platform governance is critical to platform development. Platform architectures are modularizations of complex systems in which the platform itself remains stable, while the modules are encouraged to vary in cross-section or over time (Baldwin & Woodard, 2009). Leading firms provide a basic platform structure on which module suppliers create complementary innovations. To fully utilize the advantages and resources of module suppliers and to organize them for improved collaborative innovation, the leading firms should establish and maintain a stable and coordinated communication and cooperation relationship with module suppliers, that is, relational governance. Cooperative innovation is the basic logic of innovation in platforms, and thus, it is very important to effectively coordinate the cooperative behavior and relationship with module suppliers. Relational governance can establish a foundation of trust for cooperation, improve relationship performance, and enhance coordination between the platform leader and module suppliers (Dyer & Singh, 1998). Therefore, the

efficiency of cooperative innovation can be improved. Relational governance can also induce module suppliers to make specialized investments (Yu, Liao, & Lin, 2006), which is conductive to the innovation of modules they provide, thus promoting product innovation. However, the deepening of relational governance is not always beneficial. Relational governance based on joint actions (including joint planning and joint problem solving) carries the potential risk of knowledge leakage and infringement of innovation appropriability. For example, due to HUAWEI’s knowledge leakage, Letv, which used to be a video provider for HUAWEI, turned to the production of mobile phones to compete with HUAWEI1. As a platform leader, a firm must not only provide open platform and interface knowledge to module suppliers but also pay attention to concealing internal knowledge on the platform and core modules; additionally, to maintain its dominant position, the firm must not only jointly plan and solve problems with module suppliers in the cooperation process and maintain a close connection with them but also prevent the leakage of core knowledge. Therefore, the appropriability mechanism is indispensable. This mechanism is an important means of preventing knowledge leakage, protecting the innovation knowledge rights and interests of leading firms, and guaranteeing the technological leadership and core status of these firms. Many theoretical and empirical studies have demonstrated the benefits of relational governance, such as the mitigation of opportunism (Kale, Singh, & Perlmutter, 2000; Tangpong, Hung, & Ro, 2010),

Corresponding author. E-mail addresses: [email protected] (Q. Zhong), [email protected] (Y. Sun). 1 http://tech.huanqiu.com/news/2015–04/6186679.html. https://news.sina.com.cn/sf/news/2017–01-18/doc-ifxzqnva3962624.shtml. ⁎

https://doi.org/10.1016/j.jbusres.2019.10.021 Received 26 March 2019; Received in revised form 12 October 2019; Accepted 14 October 2019 0148-2963/ © 2019 Elsevier Inc. All rights reserved.

Journal of Business Research 108 (2020) 62–73

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improvement of relationship performance (Heide & John, 1992; Lee & Cavusgil, 2006; Liu, Luo, & Liu, 2009), exchange performance (Claro, Hagelaar, & Omta, 2003; Dyer & Singh, 1998; Ferguson, Paulin, & Bergeron, 2005) and other performance (Navarro-García, SánchezFranco, & Rey-Moreno, 2016; Wacker, Yang, & Sheu, 2016), facilitation of knowledge transfer and learning (Kale et al., 2000; Lee & Cavusgil, 2006; Liu, Li, Shi, & Liu, 2017) and complementation of the use of formal governance (Abdi & Aulakh, 2014; Ness & Haugland, 2005; Poppo & Zenger, 2002; Woolthuis, Hillebrand, & Nooteboom, 2005). However, little attention has been paid to the differences in the effect on product innovation of different dimensions of relational governance based on joint actions; additionally, little attention has been focused on the inhibiting or promoting roles of the appropriability mechanisms in the impact of relational governance on product innovation. Thus, this paper proposes the following research questions: What is the relationship between relational governance and product innovation? How do legal and technological appropriability mechanisms moderate the above relationship? This paper will conduct a systematic theoretical discussion and empirical tests of these issues. The rest of this study is organized as follows. The first section provides a literature review. The subsequent section presents the research hypotheses. Next, questionnaire development, measures, the sample and the data are explained. Then, the empirical results and discussion are presented. Finally, the main theoretical and managerial implications of the findings as well as the limitations of this study are described.

social interaction in economic activities (Granovetter, 1985). Qi and Chau (2012) believe that relational governance combines the economic principles of transaction cost economics and the behavioral principles of relational exchange, emphasizing the combination of relationshipspecific assets and high-level social factors. There are also different views on the structure of relational governance. The first view is that relational governance is composed of internal norms. Norms are expectations about behavior that are at least partially shared by a group of decision makers and directed toward collective or group goals (Heide & John, 1992; Jap & Ganesan, 2000). For example, Gençtürk and Aulakh (2007) believe that relational governance consists of three types of norms: trust, commitment, and flexibility. Some scholars believe that the relational governance mechanisms of interorganizational cooperation include trust and relational norms (Heide & John, 1992; Liu et al., 2009). Relational norms include mainly information exchange, solidarity and flexibility (Goo et al., 2009; Heide & John, 1992; Poppo & Zenger, 2002) or participation (Liu et al., 2009). The second view is that relational governance is composed of external behavior. Relational governance relies on cooperation to coordinate relationships (Claro et al., 2003). In cooperation with others, relational governance reflects the extent of joint actions in business relationships (Bensaou & Venkatraman, 1995; Heide & Miner, 1992). Heide and John (1990) define joint action as the degree of interpenetration of organizational boundaries, arguing that joint action implies a departure from market-based exchanges because the roles of the buyer and supplier are no longer limited to simply transferring the ownership of products or services. Claro et al. (2003) hold that relational governance includes joint planning (JP) and joint problem solving (JPS). The third view holds that relational governance consists of both internal norms and external behavior. For example, Wang and Wei (2007) consider relational governance as the extent to which partners use mechanisms such as relational norms and joint actions to maintain their relationship based on common goals, and they divide relational governance into four dimensions: trust, commitment, coordination, and joint problem solving. Poppo et al. (2008) believe that relational governance governs and guides exchange partners based on cooperative norms and collaborative activities. Goo et al. (2009) divide relational governance into three dimensions: relational norms, harmonious conflict resolution, and mutual dependence. Module suppliers develop specific skills and capabilities for modules. The rapid changes in technology and product design as well as environmental uncertainty make forecasting, planning, and decision making difficult. Therefore, leading firms require exchange ideas with module suppliers regarding future plans, coordinate for continuous improvement, resolve conflicts collaboratively, and act jointly with module suppliers. In addition, on-site interviews with some high-tech platform leading firms, such as CRRC Corporation Limited, conducted from January 2017 to March 2018, indicate that they have built strategic module supplier systems that assist and guide module suppliers. They often hold meetings discussing unified interface solution and future cooperation issues. Therefore, in this paper, joint action is considered the core of platform relational governance; following Claro et al. (2003) from the second view of relational governance structure, an analysis of the two dimensions of joint planning and joint problem solving is conducted. Joint planning refers to the extent to which future contingencies and consequential duties and responsibilities have been made explicitly ex ante in the platform partnership (Heide & John, 1990; Heide & Miner, 1992), which is a predictive behavior. Joint problem solving refers to the extent to which the conflicts and disagreements between the leading firm and the module suppliers have been effectively resolved (Heide & Miner, 1992), which is a reactive behavior.

2. Theoretical basis and literature review 2.1. Relational governance To date, three perspectives on the connotation of relational governance have been proposed. One is the economic perspective, which has Williamson as its main advocate. Williamson (1985) regards relational governance as an intermediate mode of governance between two poles – the “market” and “hierarchy” – based on the principle of transaction cost economics (TCE). Governance based on TCE concentrates on the efficiency of minimizing transaction costs and controlling opportunistic behaviors for safeguarding specific investments in transactions. Williamson (1985) believes that interfirm relationship governance is dominated by economic weapons and emphasizes that enforcement occurs through economic means. Some scholars suggest that governance of the relationship between independent firms is designed to achieve control, which is the functional equivalent of an organizational hierarchy (Grossman & Hart, 1986). However, Heide and John (1992) argue that control is assumed to follow naturally from vertical integration and that achieving vertical control across an organizational boundary is not automatic in the basic TCE framework. The second perspective is the social perspective, which emphasizes the effectiveness of collaboration in generating value from relational resources. The social perspective regards relational governance as a social institution and holds that relational governance reflects common values and social norms among members, which in turn coordinate and manage the behavior of individual members (Goo, Kishore, Rao, & Nam, 2009; Poppo & Zenger, 2002; Poppo, Zhou, & Zenger, 2008). Goo et al. (2009) define it as the role of the enforcement of obligations, promises, and expectations that arise through trust and social identification. The enforcement occurs through social processes that promote norms of flexibility, solidarity, and information exchange (Poppo & Zenger, 2002). From the social perspective, relational governance improves trust and cooperation and will safeguard against the hazards of inadequate protection of the formal contract (Goo et al., 2009). The third is a combination of economic and social perspectives. This perspective argues that because economic behavior is closely embedded in social networks, the economic logic should acknowledge the influence of social behavior. Relational governance concerns the role of 63

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2.2. Appropriability mechanism

related to different types of innovation in a coopetition process. Stefan and Bengtsson (2017) propose that formal, semiformal, and informal appropriability mechanisms have different effects on innovation performance at different stages of the innovation process, finding that semiformal mechanisms are positively related to innovation performance, while formal mechanisms are negatively related to innovation performance in early stages; informal appropriability mechanisms contribute to innovation performance in both earlier and later stages. Previous literature, however, has not addressed an important appropriability mechanism in platforms, interface standardization (IS). The interface defines the functions, spaces, and other relationships between modules and controls module interactions (Baldwin & Woodard, 2009; Tiwana, Konsynski, & Bush, 2010). Interface standardization refers to the extent to which the interface is clear, stable, documented, and standardized. The leading firm has platform architectural knowledge and knowledge of key modules, the module suppliers have their own modular knowledge (Henderson & Clark, 1990), and the overlap between architectural knowledge and modular knowledge is the “interface knowledge” shared by both parties. This knowledge division is the basis of knowledge sharing. Interface knowledge is “system information” or “visible rules” (Baldwin & Clark, 2000), while modular knowledge is internal information from modules. The standardized interface allows modular knowledge to be encapsulated inside the modules and provides an embedded coordination for the coupling of modules (Sanchez & Mahoney, 1996). Therefore, with increasing interface standardization, the leading firm can involve less of its own architectural knowledge and internal knowledge of key modules in joint action with the module suppliers. Thus, interface standardization can effectively prevent knowledge leakage and protect innovation knowledge. In the current increasingly popular platform business model, interface standardization is particularly important for leading firms to protect their technological dominance.

Appropriability refers to the extent to which a firm derives and appropriates value from its own innovation (Ceccagnoli, 2008). The issue of appropriability is how firms can appropriate value from their inventions (e.g., Teece, 1986). A prerequisite for profiting from innovations is to prevent (or at least delay) the replication of the firm’s innovative knowledge and technology. If competitors have access to acquire, copy, and utilize innovation-related information at little or no cost, it will be difficult for firms to reap returns on their innovations (Arrow, 1962). Therefore, firms must develop appropriability mechanisms, such as patents, trademarks, copyrights, contracts and tacitness, to protect and appropriate the profits. Appropriability mechanisms represent the means of protecting both the innovation itself and the increased rents due to the innovation. Since a high level of information exchange between firms occurring in relational governance is prone to knowledge leakage, appropriability mechanisms are indispensable for leading firms to protect their innovation knowledge. Appropriability mechanisms decrease the transferability of knowledge within the cooperation network (Hurmelinna, Kyläheiko, & Jauhiainen, 2007). Scholars have emphasized the importance of appropriability mechanisms for interfirm innovation collaboration. One stream of research is on the effect of appropriability mechanisms on the willingness for innovation collaboration. Pisano and Teece (2007) believe that firms are more willing to collaborate for innovation in the context of strong appropriability mechanisms (strong formal appropriability mechanisms or technologies that are difficult to imitate). This understanding is shared by Huang, Ceccagnoli, Forman, and Wu (2013), who find that independent software vendors with stronger intellectual property rights (IPR) are more likely to join platforms. Another research stream examines the effect of appropriability mechanisms on the degree of innovation collaboration. Laursen and Salter (2014) find that the strength of firms’ appropriability mechanisms show an inverted U-shaped relationship with innovation collaboration breadth. Miozzo, Desyllas, Lee, and Miles (2016) find that formal appropriability mechanisms are positively related to innovation collaboration with partners but have an inverted U-shaped effect on innovation collaboration with clients; the contractual appropriability mechanisms have an inverted U-shaped impact on innovation collaboration with partners. Miozzo et al. (2016) therefore suggest that different combinations of appropriability mechanisms determine the enhancement or reduction of the innovation collaboration degree with different external organizations. The third research stream is on the effectiveness of innovation collaboration affected by appropriability mechanisms. For example, Yacoub (2015) reveals that formal and informal appropriability mechanisms influence the effectiveness of external collaboration on innovation performance. Seo, Chung, and Yoon (2017) find that appropriability mechanisms of different strength determine the effect of cooperation with different external organizations on innovation performance. One of the unifying ideas in the literature is that the establishment of appropriability mechanisms is crucial for innovation collaboration and that the type and extent of appropriability mechanisms utilized hold important implications for the management of innovation collaboration. The relationship between appropriability mechanisms and innovation performance has also received significant attention. Some studies indicate that appropriability mechanisms exert a positive influence on innovation performance (Hurmelinna-Laukkanen & Olander, 2014; Hurmelinna-Laukkanen, Olander, Blomqvist, & Panfilii, 2012; Kyläheiko, Jantunen, Puumalainen, Saarenketo, & Tuppura, 2011; Thomä & Bizer, 2013). Other scholars believe that the effects of appropriability mechanisms on innovation performance depend on the types and stages of innovation. While Ritala and HurmelinnaLaukkanen (2013) find that appropriability mechanisms have a positive effect on both incremental and radical innovations, Yami and Nemeh (2014) argue that different levels of appropriability mechanisms are

3. Hypothesis development 3.1. Impact of relational governance on product innovation Relational governance based on joint action is a double-edged sword: on the one hand, leading firms can better utilize and integrate external knowledge to achieve collaborative innovation with complementors; on the other hand, due to frequent interactions, communication and information sharing, leading firms face the risk of leaking core knowledge to module suppliers (Frishammar, Ericsson, & Patel, 2015; Kale et al., 2000). In the case of moderate relational governance, joint action can promote product innovation. First, joint action can enhance the participatory management of interorganizational relationships and improve cooperation efficiency and product innovation. Joint planning is an ex ante initiative that contributes to the establishment of good mutual expectations. By identifying tasks and responsibilities in cooperation and sharing production plans, business adjustment plans and each other’s demands, uncertainty in cooperation can be reduced, thereby increasing cooperation efficiency. Joint problem solving is conducive to solving problems and disagreements in cooperation and providing solutions that are satisfactory to both parties (Poppo & Zenger, 2002), thereby improving collaboration and accelerating product innovation. Furthermore, frequent contact and communication in joint planning and joint problem solving contribute to the success and stability of the cooperative relationship (Claro et al., 2003; Wang & Wei, 2007), thereby improving product innovation. Second, joint action provides greater flexibility for platform collaboration, which can promote collaborative innovation. Relational governance is subject to norms of flexibility and information exchange (e.g., Gençtürk & Aulakh, 2007; Heide & John, 1992) and is conducive to information visibility (Wang & Wei, 2007) and information sharing. 64

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Joint action and information sharing enable partners to better understand each other’s needs and demands and to make timely adjustments (Jap & Ganesan, 2000; Lado, Dant, & Tekleab, 2008); additionally, by recognizing bilateral and long-term directions and resolving problems in the event of external changes or conflicts, partners can smoothly adapt to uncertainty and improve the flexibility of platform cooperation. Thus, modest joint action can promote product innovation. However, as joint action deepens, the information sharing resulting from joint action is not always beneficial. The extent and content of information sharing may exceed what the leading firm wants to transfer to the module suppliers. Knowledge leakage occurs once the core knowledge of the leading firm is involved in the joint action and is learned and absorbed by module suppliers, intentionally or unintentionally. The knowledge leakage will motivate module suppliers to imitate the leading firm’s technologies, products or services, and the leading firm’s technological dominance will be challenged. Nevertheless, this paper holds that due to differences in the content of knowledge sharing, joint planning does not exert a negative impact on product innovation, whereas joint problem solving does exert such an impact. Joint planning aims to anticipate the future cooperation relationship and to clarify the corresponding responsibilities in the relationship. Joint planning mainly comprises sharing production and business plans, which involves information about volume demands, variety demands, sale forecasts and long-term plans (Claro et al., 2003). As it involves little core knowledge, joint planning will not exert a negative effect on product innovation due to knowledge leakage. In contrast, joint problem solving is designed to solve conflicts and disagreements in the cooperation process, such as technical problems in module coupling and interface inconsistency. Sometimes the leading firm must even provide technical guidance to module suppliers. Joint problem solving creates conditions for module suppliers to consciously learn the core proprietary knowledge or know-how of the leading firm; additionally, it increases the likelihood that the leading firm will unilaterally and unconsciously disclose its capabilities or skills to module suppliers. Therefore, although moderate joint problem solving is conducive to innovation collaboration, excessive joint problem solving will negatively affect product innovation due to the leakage of innovation knowledge. Based on the above analysis, this paper proposes the following hypotheses:

et al., 2016). The patent system ensures excludability by granting the patentee temporary monopoly rights over its invention and providing legal rights to exclude other firms from manufacturing, using and selling inventions or innovations (Amara et al., 2008). The patent system promotes technical cooperation by protecting the exclusive rights of patent owners (De Rassenfosse, Palangkaraya, & Webster, 2016). Therefore, IPR can protect the innovation knowledge of leading firms in relational governance. Contracts represent not only an important mechanism for gaining value from innovation but also an important mechanism for avoiding conflicts (or at least limiting conflict escalation) in innovation cooperation (Miozzo et al., 2016). Contracts set standard operating routines for knowledge exchange and can govern the treatment of collaboration outcomes and knowledge and intellectual property ownership issues that arise before beginning negotiations (Somaya, Kim, & Vonortas, 2011). Long-term collaboration contracts can curb the opportunistic behaviors of module suppliers and protect exclusive rights to the innovation based on the principle of infinitely repeated games and the promise of long-term cooperation. Confidentiality agreements can prevent knowledge from being leaked to firms outside the platform to maintain the competitive position of the leading firm and to ensure product innovation. Therefore, legal appropriability mechanisms can strengthen the promotion effect of joint planning on product innovation and alleviate the knowledge leakage problem caused by excessive joint problem solving. The following hypotheses are proposed: H2a. IPRs play a positive moderating role in the process by which joint planning affects product innovation. H2b. IPRs moderate the inverted U-shaped relationship between joint problem solving and product innovation such that both the upward and downward slopes of the inverted U-shaped relationship will become gentler at a high level of IPR. H2c. Contracts play a positive moderating role in the process by which joint planning affects product innovation. H2d. Contracts moderate the inverted U-shaped relationship between joint problem solving and product innovation such that both the upward and downward slopes of the inverted U-shaped relationship will become gentler at a high level of contracts.

H1a. A higher level of joint planning leads to greater product innovation.

3.2.2. The moderating role of technological appropriability mechanisms Technological appropriability mechanisms refer to the technological arrangement of the product structure or the inimitability of the knowledge and technology related to the products that allow the product innovation to be protected. The interface standardization and tacitness of knowledge (TOK) are important technological appropriability mechanisms in platforms. First, interface standardization can inhibit a tighter coupling between modules caused by excessive joint actions between the leading firm and module suppliers. Tight coupling will lead to synergistic rigidity among the modules (Baldwin & Woodard, 2009), which reduces product innovation. However, a standardized interface provides embedded coordination (Sanchez & Mahoney, 1996), which simplifies the joint action and cross-domain technology integration into standardized interface management. In addition, standardized interfaces can reduce interdependencies between modules and ensure a high level of interoperability between modules (Sanchez & Mahoney, 1996). Therefore, even in the case of gradual deepening of relational governance, interface standardization can prevent the negative influence of tighter coupling between modules. Second, interface standardization can alleviate the negative impact of knowledge leakage of the leading firm caused by excessive joint actions. The leading firm divides platform knowledge through modularization. The standardized interface can “encapsulate” the leading

H1b. Joint problem solving has an inverted U-shaped relationship with product innovation. 3.2. The moderating role of appropriability mechanisms This paper considers the appropriability mechanisms adopted by platform leading firms – legal appropriability mechanisms and technological appropriability mechanisms – and studies their moderating role in the impact of relational governance on product innovation. 3.2.1. The moderating role of legal appropriability mechanisms Legal appropriability mechanisms include IPR and contracts (Amara, Landry, & Traoré, 2008). IPRs include patents, trademarks and copyrights, and contracts include long-term collaboration contracts and confidentiality agreements (Hurmelinna-Laukkanen et al., 2012). Both IPRs and contracts ensure legal rights for litigation, infringement and counterfeiting (Hertzfeld, Link, & Vonortas, 2006; Teece, 1986). IPRs protect firm innovation from being imitated through a combination of legal mechanisms, such as patents, trademarks and copyrights. These rights reduce the risk of innovative knowledge infringement and facilitate innovation cooperation by providing a framework for what knowledge is shared and what knowledge is private (Miozzo 65

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firm’s innovation knowledge and technology in its core modules, enable knowledge sharing to focus on interface knowledge, and reduce the flow and sharing of internal knowledge of key modules and platform architectural knowledge (Cabigiosu & Camuffo, 2012) so that the leading firm can distract and hide information that may be difficult to protect through legal systems and better avoid innovative knowledge leakage in joint actions with the module suppliers (Baldwin & Henkel, 2015). Therefore, interface standardization can effectively solve the conflict between joint action and knowledge leakage. Third, the tacitness of knowledge makes it difficult to imitate the leading firm’s innovation knowledge, thereby reducing the risk of core innovation knowledge leakage caused by joint actions. Knowledge can be classified as explicit and tacit knowledge (Grant, 1996). Explicit knowledge can be coded and written, so it is easy to transfer between different organizations (Grant, 1996) and easier to obtain from external sources, while tacit knowledge is difficult to code and express in words; because of the stickiness of knowledge, tacit knowledge is not easy to transfer between organizations. Tacit knowledge is developed mainly internally by a firm through “learning by doing” (Arrow, 1962), which is difficult to obtain from outside. The degree of codification of knowledge affects the appropriability of knowledge. Therefore, appropriability is stronger for products with more tacit knowledge. The tacitness of knowledge increases the learning difficulty and prevents knowledge leakage. Therefore, technological appropriability mechanisms can moderate the impact of joint action on product innovation. This paper proposes the following hypotheses:

Fig. 1 illustrates the proposed model. 4. Methodology 4.1. Questionnaire development Based on the literature review, we compiled the authoritative scales of the published papers and invited English majors to translate and retranslate the items to avoid ambiguity in the wording. Four professors in the field were invited to review the items, and based on their feedback, a draft questionnaire was prepared. To improve the questionnaire items, two pilot studies were conducted. The first pilot study was a semistructured interview with ten managers from platform leading firms of high-end equipment manufacturing industries. An average of one and a half hours of face-to-face interviews were conducted for each interviewee. Selection of the survey methodology and sampling framework were discussed. All interviewees were asked to evaluate the following aspects: (1) which items that were not included should have been included; (2) which items should be excluded; (3) the comprehensibility of the items; and (4) the length and complexity of the questionnaire. Based on these comments, the questionnaire items were modified through adding, deleting and rewording. The second pilot study was a pretest using a convenience sample. A sample of 35 part-time EMBA or MBA students in the Business School of Hunan University was used, all of whom were middle and senior managers from local high-tech platform leading firms. The reliability of the scale was tested, and the questionnaire was further improved. The results of the second pilot study made the questionnaire more concise.

H3a. Interface standardization plays a positive moderating role in the process by which joint planning affects product innovation.

4.2. Sample and data collection

H3b. Interface standardization moderates the inverted U-shaped relationship between joint problem solving and product innovation such that both the upward and downward slopes of the inverted Ushaped relationship will become gentler at a high level of interface standardization.

Questionnaire surveys were conducted from December 2017 to May 2018, and a sample of high-tech platform leading firms was selected. The questionnaires were distributed in two ways. First, the research team visited the platform leading firms, and the questionnaires were completed through on-site interviews. Second, the researchers sent the questionnaires to the respondents by email after obtaining consent. A total of 258 questionnaires were distributed, and 203 responses were received, for a response rate of 78.68%. We further screened the collected questionnaires, excluding 53 questionnaires from nonplatform leading firms and 29 questionnaires that contained incomplete data. The final sample for the study consisted of 121 firms, for a valid response rate of 46.90%.

H3c. Tacitness of knowledge plays a positive moderating role in the process by which joint planning affects product innovation. H3d. Tacitness of knowledge moderates the inverted U-shaped relationship between joint problem solving and product innovation such that both the upward and downward slopes of the inverted Ushaped relationship will become gentler at a high level of tacitness of knowledge.

Legal appropriability mechanism Intellectual property rights

Relational governance Joint planning

Joint problem solving

H2a

Contracts

H2b

H2c

H2d Product innovation

H1a

H1b

H3a

H3b

Interface standardization

H3c

H3d

Tacitness of knowledge

Technological appropriability mechanism Fig. 1. Theoretical model and research hypotheses. 66

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Table 1 Measurement model. Standardized factor loading Joint planning (JP) Our company and the module suppliers keep each other informed relative to production plans, schedules and demand forecasts Our company and the module suppliers have a complete plan for future cooperation Our company discusses with the module suppliers when making related business adjustments The module suppliers discuss the next step of the related business with our company Our company and the module suppliers have jointly formulated a long-term cooperation plan Joint problem solving (JPS) When conflicts arose, our company and the module suppliers jointly determined a proper solution When the module suppliers’ performance did not match our expectations, we offered help or provided suggestions Our company extended technical support during emergencies and breakdowns and/or on-site support for the implementation of improvements When our company encountered some difficulties in product design, the module suppliers provided helpful opinions Interface standardization (IS) The interface standards between The interface standards between The interface standards between The interface standards between

modules modules modules modules

are are are are

standardized well defined stable well documented

0.8a

Cronbach’s α

Composite reliability

AVE

0.907

0.906

0.66

0.875

0.88

0.648

0.943

0.945

0.811

0.774

0.778

0.55

0.754

0.757

0.609

0.767

0.771

0.529

0.851

0.835

0.508

0.773*** 0.742*** 0.917*** 0.82*** 0.874a 0.822*** 0.766*** 0.751***

0.906a 0.921*** 0.902*** 0.873***

Tacitness of knowledge (TOK) It is very difficult to teach the knowledge related to the products It is very difficult to understand the features of the products by observing/examining them Knowledge related to the products may not be usable in other environments

0.661a 0.935*** 0.581***

Contracts Long-term collaboration contracts Confidentiality agreements

0.79a 0.77***

Intellectual property rights (IPRs) Patents Trademarks Copyrights

0.788a 0.72*** 0.67***

Product innovation Speed of new products to market relative to the average industry level Quantity of new products to market relative to the average industry level Novelty of new products relative to the average industry level Technological advancement of new products relative to the average industry level Quality of new products relative to the average industry level

0.611a 0.574*** 0.691*** 0.801*** 0.847***

“a” is set as a fixed value. *** p < 0.01.

4.3. Measurement

trademarks. Contracts were based on the scale of HurmelinnaLaukkanen et al. (2012), including “long-term collaboration contracts” and “confidentiality agreements”. Consistent with the scale of Tiwana (2015), interface standardization was measured using four items, including “the interface standards between modules are standardized”. Although his scales are related to IT systems, the items also apply to modular platform structures. By adapting the scales from Zander and Kogut (1995) and Hurmelinna-Laukkanen et al. (2012), tacitness of knowledge was measured using three items, such as “it is very hard to teach knowledge related to the product”.

The measurement was based both on scholars’ established scales and the results of pilot studies. A five-point Likert scale was used for each item. For the items of relational governance and appropriability mechanisms, 1 denotes “strongly disagree” and 5 “strongly agree”; for the items of product innovation, 1 represents “low” and 5 “high”. The scales of this study are shown in Table 1. 4.3.1. Relational governance Based on the study published by Claro et al. (2003), relational governance was divided into two dimensions: joint planning and joint problem solving. Based on the scales of Claro et al. (2003) and Mesquita, Anand, and Brush (2008) and combined with the results of pilot studies, joint planning was measured using five items, including “keep each other informed relative to production plans, schedules and demand forecasts”. Based on the scales of Mesquita et al. (2008) and Wang and Wei (2007), joint problem solving was measured using four items, including “When conflicts arose, our company and the module suppliers jointly determined a proper solution”.

4.3.3. Product innovation Product innovation was based on the scales of Baker and Sinkula (1999) and Zhang and Li (2010) and measured by performance in the following aspects: the speed and quantity of new products introduced to the market; the novelty, technological advancement and quality of new products compared to the average industry level. 4.3.4. Control variables The firm age, firm size, ownership, regional innovation environment (RIE) and R&D intensity (RDI) were controlled. The firm size was measured by the number of employees. Ownership is an important background factor for a firm’s external relationship. Being state-owned or nonstate-owned is related to the resource or policy advantages in

4.3.2. Appropriability mechanisms IPRs were based on the research of Hurmelinna-Laukkanen et al. (2012) and measured from three aspects: patents, copyrights and 67

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carrying out innovation activities. Economic, political, and social institutions vary across regions within countries. China is an emerging economy country with unbalanced regional economic levels, innovative infrastructure and market vitality (Chan, Makino, & Isobe, 2010). Therefore, it is necessary to control for the regional innovation environment. A firm’s R&D intensity will affect its propensity to innovate and product innovation, so this study controlled for R&D intensity, which was measured by the percentage of firm turnover (Maurer, Bartsch, & Ebers, 2011).

The results are shown in Table 4. Model 1 examines the relationship between the control variables and product innovation. The results show that none of the control variables has a statistically significant impact on product innovation. Model 2 shows that JP has a statistically significant positive impact on product innovation (β = 0.279, p < 0.01), while JPS has an inverted U-shaped relationship with product innovation (β = −0.092, p < 0.1), supporting H1a and H1b. Model 3 shows that IPRs positively moderate the impact of JP on product innovation (β = 0.125, p < 0.05), supporting H2a, and that the moderating role of IPR in the relationship between JPS and product innovation is not statistically significant (β = 0.036, p > 0.1), thus failing to provide support for H2b. In model 4, the moderating role of contracts in the impact of JP on product innovation is not statistically significant (β = 0.035, p > 0.1), while contracts moderate the inverted U-shaped relationship between JPS and product innovation (β = 0.087, p < 0.01); thus, H2c is not supported, while H2d is supported. Model 5 shows that IS negatively moderates the impact of JP on product innovation, and the result is not statistically significant (β = −0.067, p > 0.1), indicating that H3a is not supported. Again, IS moderates the inverted U-shaped relationship between JPS and product innovation (β = 0.088, p < 0.1), supporting H3b. Model 6 shows that TOK plays a negative but not statistically significant moderating role in the impact of JP on product innovation (β = −0.062, p > 0.1), which does not support H3c, and that its moderating role in the relationship of JPS and product innovation is also not statistically significant (β = 0.038, p > 0.1), not supporting H3d. To acquire further insight into the moderating effect of IPR, contracts and IS, this paper follows Aiken, West, and Reno (1991) and conducts simple slope tests to decompose the interaction terms, plotting the relationship in Fig. 2. For H2a, IPRs are divided into two groups: a low group (one standard deviation below the mean) and a high group (one standard deviation above the mean), and the effect of JP on product innovation is estimated for both levels. As shown in Fig. 2(a), the impact of JP on product innovation is significantly stronger when IPRs are high (simple slope b = 0.429, p < 0.001) compared with when they are low (b = 0.179, p < 0.05). For H2d, contracts are also divided into low and high groups. As shown in Fig. 2(b), when contracts are low, JPS has a statistically significant inverted U-shaped relationship with product innovation (b = −0.202, p < 0.001), but when contracts are high, the inverted Ushaped relationship between JPS and product innovation is not statistically significant (b = −0.028, p = 0.718), and the vertex appears outside the effective value interval. Thus, when contracts are high, product innovation is increasing within the effective value range of JPS. Similarly, for H3b, the decomposition of interaction effects is shown in Fig. 2(c). When IS is low, JP has a statistically significant inverted Ushaped relationship with product innovation (b = −0.189, p < 0.001). However, when IS is high, the inverted U-shaped relationship between JPS and product innovation is not statistically significant (b = −0.013, p = 0.877), and the inverted U-shaped vertex appears outside the effective value interval. Thus, product innovation is increasing within the effective value range of JPS when IS is high.

4.4. Construct reliability and validity The items in the measurement were based on authoritative scales from published papers and were translated by English professionals. Four professors in this field evaluated the appropriateness of the items. Furthermore, two pilot studies were conducted to improve the content and wording of the items, ensuring the content validity of the scales. Convergent validity was tested using confirmatory factor analysis (CFA) (see Table 1). The model exhibited a satisfactory fit (χ2/ df = 1.401; GFI = 0.824; RMSEA = 0.058; CFI = 0.947; IFI = 0.948). All standardized factor loadings were greater than 0.5 and were significant at the p = 0.001 level. Furthermore, the Cronbach’s α and composite reliability values of all constructs were greater than 0.7, and all the average variance extracted (AVE) values exceeded the 0.5 benchmark, indicating good convergent validity and reliability (Anderson & Gerbing, 1988). To test the discriminant validity, the correlation between two constructs was compared to their square root of AVE values. As shown in Table 2, none of the correlations was higher than the square root of the AVE values. Therefore, discriminant validity was guaranteed (Fornell & Larcker, 1981). In addition, Table 3 shows the correlation coefficients and significance levels between constructs, as well as the mean and standard deviation of each construct. The correlations between independent variables, moderating variables and dependent variable were significant, which indicated that the model and hypotheses were reasonable. 4.5. Common method bias assessment Because the analysis relied on single key informants to obtain the perceptual measure, a common method bias existed. Harman’s singlefactor test was used to statistically assess the impact of the common method bias (Harman, 1967). This single-factor model showed low fit with the data (χ2 = 1313.13, χ2/df = 4.392, GFI = 0.503 < 0.9, RMSEA = 0.168 > 0.05, NFI = 0.442 < 0.9, TLI = 0.456 < 0.9, CFI = 0.500 < 0.9). In addition, most of the factor loadings were not significant. In summary, a dominant, single factor did not emerge, and thus, common method bias was not a major concern in this study. 5. Analysis and results A hierarchical regression analysis was used to test the hypotheses. Table 2 Discriminant validity.

Product innovation JP JPS IS TOK IPR Contracts

Product innovation

JP

JPS

IS

TOK

IPR

Contracts

0.713 0.507 0.440 0.457 0.352 0.451 0.405

0.812 0.722 0.438 0.216 0.345 0.259

0.805 0.332 0.286 0.346 0.254

0.901 0.236 0.176 0.260

0.742 0.214 0.158

0.727 0.386

0.78

The bold values on the diagonal are the square roots of the AVE, and the values on the off-diagonal are the correlation coefficients. 68

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Table 3 Descriptive statistics of variables. Variable

Mean

SD

1

2

3

4

5

6

7

8

9

10

11

12

1. Product innovation 2. JP 3. JPS 4. IS 5. TOK 6. IPR 7. Contracts 8. Firm Age 9. Firm Size 10. Ownership 11. RIE 12. RDI

3.812 3.979 4.046 3.913 3.261 3.995 4.488 14.413 3.160 0.310 8.670 2.920

0.692 0.693 0.689 0.887 0.756 0.939 0.706 8.661 1.072 0.463 7.446 1.122

1 0.507*** 0.440*** 0.457*** 0.352*** 0.451*** 0.405*** 0.153* 0.211** 0.067 −0.153* 0.113

1 0.722*** 0.438*** 0.216** 0.345*** 0.259*** 0.069 0.180** −0.141 −0.178* 0.128

1 0.332*** 0.286*** 0.346*** 0.254*** 0.039 0.114 −0.142 −0.143 0.062

1 0.236*** 0.176* 0.260*** 0.101 0.172* 0.020 −0.370*** 0.087

1 0.214** 0.158* −0.006 −0.026 −0.025 0.044 −0.012

1 0.386*** −0.027 0.211** −0.041 −0.022 0.100

1 0.199** 0.283*** 0.012 −0.309*** −0.001

1 0.367*** 0.195** −0.146 −0.171*

1 0.087 −0.225** 0.018

1 0.221** −0.160*

1 −0.123

1

Pearson correlation (2-tail test) was used. *** p < 0.01. ** p < 0.05. * p < 0.1. Table 4 Results of regression analysis. Variable

Product innovation

Control variable

(Constant) Firm Age Firm Size Ownership RIE RDI

Independent variable

JP JPS JPS2

Moderating variable

IPR IPR × JP IPR × JPS IPR × JPS2 Contracts Contracts × JP Contracts × JPS Contracts × JPS2 IS IS × JP IS × JPS IS × JPS2 TOK TOK × JP TOK × JPS TOK × JPS2 R2 Adjust R2 F

Model 1

Model 2

3.812 0.062 0.100 0.056 −0.076 0.087

***

Model 3

Model 4

Model 5

Model 6

3.902 0.061 0.055 0.100* −0.032 0.047

3.877 0.085 0.024 0.079 −0.026 0.039

***

3.872 0.046 −0.008 0.069 0.029 0.005

3.886 0.054 0.051 0.075 0.035 0.038

***

3.889*** 0.057 0.066 0.070 −0.040 0.030

0.279*** 0.080 −0.092*

0.304*** −0.004 −0.116**

0.257*** 0.038 −0.115**

0.200** 0.057 −0.101**

0.154** 0.125** 0.044 0.036

0.080 0.040 0.010*

0.338 0.290 7.140***

0.466 0.407 7.862***

0.126* 0.035 0.236*** 0.087***

0.513 0.459 9.498***

0.074 −0.067 0.177*** 0.088*

0.435 0.372 6.935***

0.242*** 0.049 −0.109**

0.125* −0.062 0.167** 0.038 0.428 0.365 6.743***

*** p < 0.01. ** p < 0.05. * p < 0.1.

6. Discussion

objective of Claro et al. (2003) is the relational governance between the merchant distributor and the supplier. The relationship between the merchant distributor and supplier is a simple product market trading relationship, and thus, co-innovation is not involved in the transaction process. Therefore, not only joint planning but also frequent exchanges and contacts in joint problem solving will not cause innovative knowledge leakage or damage innovation appropriability. In contrast, the research objective of this paper is the relational governance between the leading firm and module suppliers in the platform. The platform is an interfirm organization that differs from the purely market transaction. The cooperation model is not simple product trading but rather a cooperation ecosystem in which the leading firm provides the

This empirical analysis verifies that joint planning positively affects product innovation, while joint problem solving has an inverted Ushaped relationship with product innovation. Our findings confirm our view that excessive joint problem solving will have a negative impact on product innovation due to knowledge leakage, while joint planning is always beneficial to product innovation, and there is no such thing as excessive joint planning. This finding is inconsistent with the findings of Claro et al. (2003), whose empirical research found that both joint planning and joint problem solving have a positive impact on performance. A possible explanation for this phenomenon is that the research 69

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Fig. 2. Decomposing the interaction effects.

platform structure, and the module suppliers provide complementary modules to supply users with system products or total solutions. Such cooperation necessitates greater cocreation and complementarity of knowledge. Therefore, frequent communication with module suppliers in joint problem solving will undoubtedly lead to leakage of the leading firm’s innovation knowledge. Thus, excessive joint problem solving will damage the firm’s innovation appropriability and product innovation. Some of the hypotheses regarding the moderating roles of appropriability mechanisms are not supported. First, the empirical conclusion does not support the weakened effect of intellectual property rights on the inverted U-shaped relationship between joint problem solving and product innovation, potentially mainly because intellectual property rights protect explicit or disclosed knowledge. Knowledge that is leaked or stolen during the process of joint problem solving due to frequent communication and contact between staff or individuals is mainly tacit or undisclosed knowledge. Thus, intellectual property rights do not protect tacit and undisclosed knowledge during the process of joint problem solving. In addition, since intellectual property rights only offer legal protection for knowledge of registered patents, trademarks and copyrights, there remains a risk of theft in joint problem solving for innovative technologies and knowledge that are not protected by law, thereby affecting product innovation. Second, the empirical conclusion does not support the positive moderating role of contracts, interface standardization and tacitness of knowledge during the impact of joint planning on product innovation.

A possible explanation for this finding is that, unlike intellectual property rights, which tend to protect explicit and disclosed knowledge, contracts, interface standardization, and tacitness of knowledge mainly protect tacit and undisclosed knowledge. Long-term collaboration contracts enable partners to consciously restrain opportunistic behaviors such as imitation by establishing the expectation of and commitment to mutual benefit. Confidentiality agreements can prevent the disclosure of innovation knowledge to third parties. Interface standardization protects core innovation knowledge by encapsulating it in modules. Tacitness of knowledge protects exclusive innovation rights through the difficulty of learning and imitating knowledge. However, in the process of joint planning between leading firms and module suppliers, knowledge sharing primarily involves production and business plan information, such as quantity and variety demands, sales forecasts and long-term plans, and rarely involves tacit and undisclosed knowledge or know-how. Therefore, contracts, interface standardization and tacitness of knowledge cannot strengthen the impact of joint planning on the leading firm’s product innovation through protecting its innovation knowledge. Third, the weakened role of tacitness of knowledge in the inverted U-shaped relationship between joint problem solving and product innovation is not supported. The main reasons for this result may be personal relationships and friendships. Tacit knowledge often resides in firms’ employees, and employees have a major role in knowledge transfer between firms (Cohen & Levinthal, 1990). In addition to 70

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conducting normal work communication for firm cooperation, there are often private or personal friendships between employees from different firms. Thus, they may intentionally or unintentionally share a large amount of tacit knowledge, such as technical know-how, in informal private interactions and communications. Close personal relationships are more conducive to the transfer of tacit knowledge. Therefore, tacitness of knowledge does not function to prevent knowledge leakage and cannot alleviate the inverted U-shaped effect of joint problem solving on product innovation. Based on the decomposition of the interaction terms, we can further reveal the moderating role of appropriability mechanisms in the relationship between relational governance and product innovation. First, although joint planning can promote product innovation, product innovation presents comparative differences under different levels of intellectual property rights. When the degree of joint planning is lower than the intersection of two straight lines, the leading firms with weaker intellectual property rights have better product innovation. However, when the degree of joint planning exceeds the intersection point, the leading firms with stronger intellectual property rights tend to have higher product innovation. Second, when contracts are at a low level, there is a threshold for joint problem solving, and when it exceeds the threshold, product innovation presents a decreasing trend. Moreover, the inverted U-shaped relationship between joint problem solving and product innovation (b = −0.202) is steeper than that which does not consider the moderating effect of the appropriability mechanisms (b = −0.092). These findings indicate that when the contract mechanism is weak, excessive joint problem solving can lead to a faster decline in product innovation, suggesting that for leading firms with a weak contract mechanism, excessive joint problem solving with module suppliers is unwise. However, when contracts are at a high level, there is no threshold within the valid interval of joint problem solving, which indicates that when the contract mechanism is sufficiently strong, joint problem solving always promotes product innovation. Similarly, when the interface standardization is at a low level, there is also a threshold for joint problem solving. Once the threshold is exceeded, product innovation decreases. However, when interface standardization is high, there is no threshold for joint problem solving within the valid interval. These findings demonstrate that for a platform with a low level of interface standardization, the leading firm should not excessively solve problems with module suppliers because the damage caused by knowledge leakage is greater than the benefits of joint problem solving, while for a high level of interface standardization, the leading firm should jointly solve problems with module suppliers as much as possible, which can help improve product innovation.

the different mechanisms by which joint planning and joint problem solving affect product innovation and uncovering the potential damage to product innovation caused by excessive joint problem solving. Second, this paper offers novel and complementary insights regarding the integration and optimization of open sharing and innovation protection. The leading firm’s legal and technological appropriability mechanisms are incorporated into the mechanism by which relational governance affects product innovation. These findings reveal the matching relationship between different manners and extents of joint actions and different appropriability mechanisms, as well as its influence on product innovation. Third, our study enriches appropriability theory by proposing the appropriability mechanism of “interface standardization” in the context of platform cooperation and examining its role in platform relational governance. With the rise in platform cooperation internationally, knowledge sharing and knowledge leakage in platform cooperation have become global problems. However, none of the appropriability mechanisms proposed by scholars is specific to platform cooperation. Because the basic architecture of a platform is the modularization of complex systems (Baldwin & Woodard, 2009), this paper proposes that interface standardization is an effective appropriability mechanism in platform cooperation. Empirical study results also confirm this point. This study has important managerial implications for platform governance and knowledge management. First, for leading firms, joint action with module suppliers does not follow “the deeper the better” prototype. Moderate joint problem solving is conducive to product innovation, but leading firms should be aware of the leakage of innovation knowledge and the damage to innovation appropriability caused by excessive joint problem solving. Furthermore, during the process of joint problem solving, they should attempt to avoid sharing core knowledge and engage in more discussion about the coordination of interface knowledge. Second, product innovation should focus on the matching and coordination of joint actions and appropriability mechanisms. If the degree of joint planning with module suppliers is low, weaker intellectual property rights appropriability mechanisms can lead to higher product innovation for the leading firm, and vice versa. For platforms with a high degree of joint problem solving, leading firms should adopt a strong contract appropriability mechanism and enhance interface standardization. Third, leading firms should combine legal and technological appropriability mechanisms. Leading firms are faced with the dilemma of opening platforms, strengthening communication and connection with module suppliers, and protecting their innovation knowledge. Different forms of joint action have different knowledge leakage contents and characteristics; additionally, different appropriability mechanisms can protect different types of knowledge, so it is necessary for the leading firms to combine legal and technological appropriability mechanisms to protect their innovation rights and solve this dilemma. The limitations of this study are mainly as follows: First, the data in this study were provided by single key informants. Although the data passed the common method bias test, if data could be collected from multiple informants, this concern could be better addressed. Second, the selection of survey objects and the screening of valid questionnaires strictly followed the basic characteristics of platform, thus limiting the samples. Although the sample size and data analysis methods are both statistically correct and valid, the findings may have limited generalizability. We hope future studies will be inspired by our findings and further explore the content and forms of managing innovation appropriability for a platform and their impact on platform performance. As leaders of the platform, leading firms must also promote the fair distribution of platform innovation benefits so that module suppliers can obtain equal returns from their respective innovation contributions. By managing innovation appropriability, leading firms can motivate module suppliers to actively innovate, thereby improving the overall output and performance of the platform.

7. Conclusion and implications This paper systematically reveals the mechanism of relational governance effects on product innovation from the two dimensions of joint planning and joint problem solving and explores the moderating roles of the legal and technological appropriability mechanisms. We find that joint planning positively affects product innovation, while joint problem solving exhibits an inverted U-shaped relationship with product innovation. Additionally, this study shows the differences in the moderating roles played by different appropriability mechanisms. Intellectual property rights strengthen the positive impact of joint planning on product innovation, while contracts and interface standardization weaken the inverted U-shaped relationship between joint problem solving and product innovation. The main contributions of this paper are as follows. First, relational governance theory is developed by revealing its limitations. Many studies have expounded on and validated the importance of relational governance in cooperation and advocated joint action, but little attention has been paid to the difference in the effects of different forms of joint action on product innovation, especially the negative effect of excessive joint action. This study complements this content by revealing 71

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Acknowledgements

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