MODERATING EFFECTS OF R&D ON

CORPORATE GROWTH IN U.S. AND

JAPANESE HI-TECH INDUSTRIES:
AN EMPIRICAL STUDY

JOOH LEE
Rowan College of New Jersey

EUNSUP SHIM
St. Joseph k University

The purpose of this study is to investigate the impact of R&D on a firm’s long-
run performance and competitiveness within the U.S. and Japanese high-tech
industries. First, we examine whether there is a positive relationship between R&D
expenditures and a firm’s long-run performance (i.e., market growth). We then
search for a systematic difference in this relationship between two different economic
environments, the U.S. and Japan. Furthermore, the interacting (moderating) effect
of R&D on the firm’s competitive structure and performance is explored. That is,
how R&D moderates the linkage between the selected strategies and firms’
performance. We find the results indicate a positive relationship between R&D
expenditures and a firm’s market growth, but one that is constant only in Japan.

INTRODUCTION

Most industrialized countries like the U.S. and Japan derive their comparative
advantage from superiority in developing and producing technologically advanced
products. Many other driving forces contribute to a firm’s competitive position. Firm
strategies such as advertising, financial structure, labor force, and research and
development (R&D) expenditures impact on the competitive position as well as
profitability (Boer, 1994; Chauvin & Hirschey, 1993; Erickson & Jacobson, 1992; Lee

Direct all correspondence to: Jooh Lee, Associate Professor of Management, School of Business, Rowan
College of New Jersey, Glassboro, NJ 08028; Eunsup Ship, Assistant Professor of Accounting, College of
Business and Administration, St. Joseph’s University, Philadelphia, PA 19131.

The Journal of High Technology Management Research, Volume 6, Number 2, pages 179-191.
Copyright @ 1995 by JAI Press, Inc.
All rights of reproduction in any form reserved.
ISSN: 1047-8310.
180 THE JOURNAL OF HIGH TECHNOLOGY MANAGEMENT RESEARCH Vol. ~/NO. 2/ 1995

& Zahra, 1994; Morbey & Reithner, 1990). Among these strategic factors, R&D activity
is considered one of the most important parts of maintaining a lead, especially, in high-
tech industries (e.g., chemicals, drugs, electric and electronics, and machinery).
Specifically, R&D activity seems to substantially contribute to high-tech industries in
gaining competitive advantage as well as superior market performance (Tassey, 1983).
In today’s global economy, R&D is becoming linked with superior profitability and
performance in a growing number of industries (Hitt, Ireland, Hoskisson, 1995; David,
1995; Grant, 1995). Investments in R&D for superior products or services are leading
to market growth and profits. Over the last decade, Japanese high-tech industries have
taken a dominant market position over their counterparts. It was mainly attributable
to the development of innovative and quality products by high R&D investments and
the improvement of productivity by efficient manufacturing operations. Due to their
success, more attention is being paid to the role of R&D in sustaining a competitive
advantage (Erickson & Jacobson, 1992; Long & Ravenscraft, 1993; Sveikauskas, 1986).
Despite the substantial role of R&D expenditures, it alone may not assure success
of a firm. The relationships between the firm’s competitive position and profitability
are still puzzling because of the interacting (moderating) effect of R&D on this linkage
(Fryxell, 1990). The impact of R&D on firm profitability could be moderated by some
other strategic variables. That is, the general direct pattern of the R&D and market
growth may not be obvious, when it is implemented with other strategic factors such
as advertising, capital intensity, financial structure, labor force, firm size etc.
This paper is organized as follows. The second section reviews relevant literature on
R&D expenditures and corporate performance and develops testable hypotheses. The
third section describes a representative sample and methodology. The fourth section
presents results and provides analysis, The fifth section concludes the paper.

THEORETICAL BACKGROUND AND HYPOTHESES

Most of the previous empirical findings suggest that R&D has a positive impact on
firm’s performance (Branch, 1974; Brenner & Rushton, 1989; Doukas, 1991; Ito &
Pucik, 1993; Long & Ravenscraft, 1993; Sveikauskas, 1986; Tassey, 1983). R&D
expenditures normally result in new product(s) and techniques that help a firm develop
and sustain its competitive advantage, to increase market share, or to penetrate new
markets. Sveikauskas (1986) evaluates the contribution of R&D expenditures to
productivity growth. He shows that R&D activity has a substantial impact on
productivity growth in high-tech industries. In a study employing seven different
industries, Branch (1974) finds that changes in R&D expenditures tend to be positively
associated with changes in profits. Other studies show the same (Brenner & Rushton,
1989; Cook & Rizzuto, 1988). Lee, Lee, and Zahra (1994) however, reported
contradicting evidence that there is no significant relationship between R&D
expenditure and profits in the U.S. and Japanese pharmaceutical industries.
The first hypothesis tests the existence of a positive relationship between R&D
expenditure and firm’s long-run performance, namely market growth in sales. Most
U.S. and Japanese corporations often use sales as a measurable indicator in setting
their goals and also place a significant emphasis on the growth in sales (Kim & Song,
1990). Therefore, this study employs the market growth in sales as a major index of
R&D Effects on US & Japanese Hi Tech Corporate Growth 181

a firm’s performance. It also examines whether this relationship holds for a different
economic environment, namely Japan. Although most previous studies have empirically
demonstrated the significant impact of R&D activity on profitability, it may be
questionable whether a general association exists in other countries or in different
economic environments. So far, the evidence is mixed. Johnston (1984) demonstrates
that higher R&D investments by Japan have contributed to their competitive edge over
the United States. Ito and Pucik (1993) explored the impact of the export performance
and strategic variables in Japanese manufacturing firms and found that a firm’s foreign
trade activity by export is related to the size of the firm, but not to the firm’s R&D
expenditures. The first hypothesis is stated as:

Hl: R&D activity is positively related to the firm’s market growth in the
high-tech industries regardless of different business environments
across countries.

The linkage between R&D and profits may be inherently contingent upon other
strategic elements such as firm size, capital intensity, and diversification activity. That
is, the R&D and company performance linkages may be dependent upon which other
strategic variables are jointed or interacted (linked) with the main structure. R&D may
influence the performance as a moderator. Other strategic variables also contribute to
the competitive position as well as profits. The strategic variables which have been
studied for these linkages are debt structure (Baysinger & Hoskisson, 1989; Long &
Ravenscraft, 1993), advertising intensity (Erickson & Jacobson, 1992; Tassey, 1983),
diversification (Gomez-Mejia, 1992), firm size (Ito & Pucik, 1993; Scherer & Ross,
1990;), labor productivity (Morbey & Reithner, 1990) and export activity (Ito & Pucik,
1993).
The second hypothesis examines the moderating effect of R&D on the relationship
between other strategic variables and performance. This hypothesis posits that the effect
of R&D on market growth is moderated by other strategic variables.

H2: The relationship between corporate strategies and performance

(growth) is moderated by the R&D intensity. Thus, the corporate
performance related to strategies will vary with the degree of R&D
intensity across country.

SAMPLE AND RESEARCH METHODS

Sample

A sample of Japanese firms is randomly selected from six different high-tech

industries. And then, a sample of American firms is selected by matching industry
classification with Japanese sample. This industry matching was necessary to reduce
industry-effect on profitability (Blaine, 1993). Total samples consisted of 286 firms from
six different high-tech industries (i.e., 143 Japanese firms and 143 U.S. firms). The data
for each variable are the aggregated average for the five year period (1986-1990). This
time frame is considered adequate to control for year-to-year variations of the data.
For U.S companies, data were collected from COMPUSTAT and data for Japanese
182 THE JOURNAL OF HIGH TECHNOLOGY MANAGEMENT RESEARCH Vol. ~/NO. 2/ 1995

TABLE 1
Industry Classification of the Sample
Industry Classification USA Japan Total

Chemicals and allied products (sic 28) 34 34 68

Drugs (sic 284) 20 20 40
Electric and Electronics (sic 37) 37 37 74
Transportation equipment (sic 37) 33 33 66
Measuring Instruments, Precision, and
Photo graphics (sic 38) 10 10 20
Nonelectrical Machinery (sic 35) 9 9 18

Total 143 143 286

firms were collected from Annual Corporation Reports by NZKKEZ and Toyo Shiki-
Honde (various issues).
The classification of high-tech industries followed previous empirical studies which
employed ratios of R&D expenditures to sales (Chauvin & Hirschey, 1993; Bernstein
& Nadiri, 1988). The high-tech industries represented in the sample are presented in
Table 1. The industries which are presented in relatively greater portions are “Electric
and electronics” (74 firms or 25%), “Chemicals” (68 firms or 24%) and “Transportation”
(66 firms or 23%) respectively.

Model and Variable Specification

The empirical model are presented as follows:

Y = a + brXi f b2D f b3XiD

where Y= performance measure (i.e., market growth)

X = the competitive strategic variables
D = hypothesized moderator variable (i.e., R&D intensity)
XiD = interaction term.

The essence of the empirical relationships can be stated that a firm’s market growth
(in sales) is a function of the competitive strategic variables and R&D intensity and
interaction effects. The competitive strategic variables examined are advertising
intensity, capital intensity, firm size, capital utilization, debt leverage, foreign trade by
export, and labor productivity.
To operationalize the variables in the model, these following measures are used:
Market Growth in Sales (MGRS) is the compounded average annual rate of growth
in sales.

MGRS = (St - &I)/ St-1

where S, is sales of year t

S,-1 is sales of year t- 1.
R&D Effects on US & Japanese Hi Tech Corporate Growth 183

R&D Intensity (R&DIN) is measured by the ratio of R&D expenditures (book value)
to total sales.

Advertising Intensity (ADVZN is measured by the ratio of advertising expense to

total sales.

Capital Intensity (CAPZN) is measured by the total assets as a proportion of total

sales.

Capital Utilization (CAPTZ) is measured by the ratio of equity to equity plus total
debts.

Firm Size (FSZZZ$ is measured by the natural logarithm of total assets.

Debt Leverage (DEBTR) is measured by the ratio of total debts to the shareholders’
equity.

Labor Productivity (LAPRD) is measured by the natural logarithm value of ratio

of total sales divided by total number of employees.

Export Activity (EXPOR) is measured by export sales volume over total sales.

Research Method

Correlation analysis is conducted to examine the existence of relationship between R&D

intensity and market performance (i.e., growth rate in sales). To examine the magnitude
of the relationship, the standardized multiple regression analysis is utilized. In order to
look for interactive effects of R&D activity on the linkage of firm’s competitive position
and market growth, a moderated regression analysis is employed. The purpose of
moderated regression analysis is to examine whether the interaction term increases the
explanatory power of the variance (Arnold, 1982; Hitt & Ireland, 1986). The moderated
regression analysis should provide a conservative estimate for the moderating effects of
R&D activity on the relationships between major strategic factors and performance.

RESULTS AND ANALYSIS

Descriptive Statistics

Table 2 reports the means and standard deviations of the variables which represent
market growth rate in sales (MGRS) and the competitive variables for the U.S. and
Japanese high-tech firms. The Japanese companies, on the average, tend to yield
relatively lower growth in sales (10.83% in Japan vs. 13.45% in U.S.) This seems to
indicate a slow down of growth for Japanese high-tech firms compared to that of U.S.
firms during 1986-1990.
These means also show some other notable difference between U.S. and Japan.

1. Japanese high-tech industries appear to place more emphasis on R&D activity

(R&DIN) than their U.S. counterparts (4.83% compared to 3.54%). For example,
Japanese pharmaceutical industry has exhibited a phase of rapid advancement
because of its R&D expenditures in new drugs (Lee & Zahra, 1994).
184 THE JOURNAL OF HIGH TECHNOLOGY MANAGEMENT RESEARCH Vol. ~/NO. 2/ 1995

TABLE 2
Descriptive Statistics (Means and Standard Deviations)
U.S. Japan
Variables Label Mean Std. Dev. Mean Std. Dev.

Growth in Sales MGRS 0.1345 0.1353 0.1083 0.0912

Advertising Intensity ADVIN 0.0225 0.0363 0.023 1 0.0315

Firm Size FSIZE 7.212 1.833 8.15 1.122
Capital Intensity CAPIN 0.9063 0.4572 0.9662 0.4523
Capital Utilization CAPTZ 0.6172 0.2452 0.7785 0.2102
Export Activity EXPOR 0.0462 0.0904 0.1692 0.2264
R & D Intensity R&DIN 0.0354 0.0434 0.0483 0.0395
Debt Leverage DEBTR 0.8273 2.183 0.7171 1.321
Labor Productivity (In) LAPRD 4.833 0.548 4.219 0.643

N 143 143

2. Japanese firms also show higher ratios for export activity (EXPOR), capital
intensity (CAPIN) and capital utilization (CAPTZ). Due to Japanese national
market strategy, Japanese manufacturing firms have attained the incremental
benefits derived from exports (Ito & Pucik, 1993). There is no question about
the importance of foreign trade to Japanese high-tech industries.
3. The descriptive statistics show that the U.S. firms are reported to have a higher
debt leverage than that of Japanese firms. This finding is consistent with Blaine’s
study (1993) which states that the debts levels of American corporations have
increased substantially, equaling, and in some case surpassing, those of similar
Japanese firms.

The notion that Japanese firms have substantially higher levels of debt than American
firms is not as convincing today as it once was. The difference is that while U.S. firms
surpass Japanese fums in labor productivity and advertizing intensity, Japan continues to
employ a higher quality labor force which contributes to high productivity (Yoshio, 1994).

Intercorrelation among the Variables

Intercorrelation among the variables are presented in Table 3. The results show that
research and development (R&DIN) are statistically significant and positively correlated
with the firm’s market growth (MGRS) in both countries. This confirms the first
hypothesis that there is a positive relationship between R&DIN and MGRS. That is,
increase in R&D expenditures will increase market share of U.S. and Japanese high-
tech firms. This finding is consistent with previous studies (Boer, 1994; Doukas, 1991;
Johnston, 1984; Morbey & Reithner, 1990). In a recent study, Boer (1994) demonstrates
that R&D affects a fraction of a corporation’s growth and it is the key to establish
competitive advantage and market value in a dynamic global economy.
ADVIN, CAPIN, CAPTZ and EXPOR of Japanese firms are significant and
positively correlated to market performance (MGRS), while CAPIN and CAPTZ are
not significant in the U.S firms. FSIZE is significantly and positively correlated with
MGRS in the U.S. but not in Japan. Capital intensity (CAPIN) represents a firm’s
R&D Effects on US & Japanese Hi Tech Corporare ~rowrh 185
186 THE JOURNAL OF HIGH TECHNOLOGY MANAGEMENT RESEARCH Vol. ~/NO. 2/ 1995

TABLE 4
Results of Standardized Multiple Regression
US Japan
Variable Stand. Beta t-value Stand. Beta t-value

ADVIN 0.1740 2.086* 0.0636 0.895

FSIZE 0.2417 2.941** 0.1271 1.427
CAPIN 0.0703 0.073 0.4581 5.308***
CAPTZ 0.2205 2.328** 0.2386 2.768**
EXPOR -0.0135 -0.170 0.2946 2.810**
R&DIN 0.3542 2.097* 0.3119 2.138*
DEBTR -0.1898 -2.184* -0.1613 -2.054*
LAPRD 0.1686 1.966* 0.2046 2.140*

F-ratio 4.2763** 9.1652***

R-square 0.3389 0.5114
Adj. R2 0.3185 0.4902

Notes: Market Growth in Sales (MGRS), Advertising intensity (ADVIN), Firm size (FSIZE), Capital intensity (CAPIN),
Capital utilization (CAPTZ), Foreign trade by export (EXPOR), Research & Development activity (R&DIN), Debt
leverage (DEBTR), Labor productivity (LAPRD).

*p<0.05;**p<0.01;***p<0.001.

long-term commitment to building its technological base and upgrading its productive
capacity. CAPIN is positively linked with MGRS only in Japan. Other studies
(Ravenscraft & Scherer, 1982; Zahra & Fescina, 1991) assert positive linkage of capital
expenditure with corporate long-term performance in the U.S. as well. As expected,
foreign trade by export (EXPOR) and advertising expenditures (ADVIN) are positively
related to market performance regardless of different economic environment. Debt
leverage (DEBTR) is negatively related to MGRS but it is significant only in Japan.
In addition to the Pearson product moment correlations analysis, Variance Inflation
Factor (VIF) for all explanatory variables are presented in Tables 3 and 4. The VIF
does not appear to be a serious problem because it is under the acceptable value (FZF
< 10). Hence, it suggest that there is no multicollinearity problem among the variables
tested in this study.

Contribution of Strategic Variables

The standardized multiple regressions (see Table 4) show that firm’s competitive
variables and market growth rate in sales (MGRS) in both countries are statistically
significant at the 0.01 level. Hence, this model is useful in predicting market performance
(i.e., MGRS) of the hi-tech industries in both countries.
As we expected, R&D does have a significant effect (p < 0.05) on market growth
in both Japan and U.S.A. This finding is consistent with previous studies (Chauvin
& Hirschey, 1993; Erickson & Jacobson, 1992; Johnston, 1984). The results also suggest
that R&D plays a critical role in determining market growth in the high-tech industries
across countries. The benefits of R&D are long term in nature and could adversely
affect short-term profitability (Erickson & Jacobson, 1992). Managers in the high-tech
industries therefore may not willing to bear the costs and risks of long-term development
of product and process innovation. Accordingly, although R&D expenditures have a
R&D Effects on US 81 Japanese Hi Tech Corporate Growth 187

fairly strong association with sales growth, R&D expenditures should be examined on
a long-term basis.
Labor productivity (LAPRD) represented by the sales per employee is statistically
significant (p<O.O5) and positively associated with market growth in both countries.
Thus, LAPRD can be taken as an indicator of the production efficiency of firm. It
also is one of the most significant factors in improving performance and growth across
countries (Hambrick & Schecter, 1983; Lee & Blevins, 1990; Liberman, Lau, William,
1990). With respect to the labor productivity, Japanese firms still retain the superior
position with a higher quality labor force and training standards. Japanese high-tech
industries achieved significant gains in productivity by pioneering new operations
techniques such as total quality control (TQC), Kanban and Just-in-time (JIT). It is
of no question that an improvement in labor productivity is a major determinant of
company’s market performance.
Foreign trade by export (EXPOR) is significant @<O.Ol) and positively associated
with market growth in Japan but not significant in the U.S. A noticeable growth in
Japanese high-tech industries is mainly due to an increase in exports. Direct overseas
investments to boost foreign sales by Japanese corporations are indispensable elements
of company success (Ryuhei, 1993). International trade policy in Japan gains credence
as evidenced in the export strategies of Japanese firms. In fact, the Japanese have gained
prominence in international trade by encouraging firms to be active in exports (Kelly
& London, 1988). Although the result of this study shows a significant effect of export
only in Japanese firms, it is the general notion that a high level exports boost profitability
and growth (Buzzell & Gale, 1987; Ito & Pucik, 1993).
The results show that financial leverage (DEBTR) is significant but negatively
associated with a firm’s market performance in U.S. and Japan. DEBTR is statistically
significant but in a negative sign only in Japan. This result suggests that high levels
of debts negatively affect the market growth in sales. High debts could prevent firms
from raising additional funds for productive R&D projects and the firm could be less
competitive in the long-run.
Capital utilization (CAPTZ) is one of the most important factors for the industries
with high capital investments (Rowe, Mason, Dickel, Mann, & Mockler 1994). CAPTZ
is significantly @<O.Ol) and directly associated with high market performance for
Japanese and U.S. companies, while capital intensity (CAPIN) is significant only in
Japan. More effective use of capital will ensure the firm to maintain a competitive
posture in its industry across countries. However, only a favorable linkage between
R&D and capital investments for a technological innovation may boost and sustain
a competitive edge in the world marketplace. The effect of firm size (FSIZE) on market
growth is significant @<O.Ol) only in the U.S. firms. The lirm size is not significantly
associated with MGRS in Japan. Evidently, the relative roles of firm size on the market
growth depend more upon economic and cultural differences (e.g., quality of labor,
venture capital sources, and industry characteristics).
Advertising intensity (ADVIN) is positively associated with a firm’s market
performance in both countries. But it is statistically significant @<0.05) for MGRS
only in U.S. The findings that advertising is considered a major determinant of firm’s
business performance is supported by previous studies as well (Chauvin & Hirschey,
1993; Conolly & Hirschey, 1984; Lee, Lee, & Zahra, 1994; Scherer & Ross, 1990). The
results for Japanese firms are not significant but positively correlated.
188 THE JOURNAL OF HIGH TECHNOLOGY MANAGEMENT RESEARCH Vol. ~/NO. 2/ 1995

In sum, research and development activity, capital utilization, and labor productivity
have a significantly positive association with market growth in sales (MGRS) in the
U.S. and Japan. Advertising intensity and firm size appeared to be significantly related
to MGRS with moderate magnitude. However, capital intensity, foreign trade by
export, and debt leverage are statistically significant in Japan alone. Overall the results
indicate that such competitive forces as R&D activity, effective use of capital, and better
labor forces are the major determinants of a firm’s market growth in the high-tech
industry of the U.S. and Japan.

Moderating Effects of R&D

The results of the moderated regression analysis are presented in Table 5. The change
in the R-square from the restricted model to the unrestricted (full) model is statistically
significant (p<O.Ol) in the U.S. The unrestricted (full) model consists of restricted model
plus interaction variables for the firm’s competitive powers. For U.S. firms, the
moderating effects of R&D is contributing significantly in explaining firms’
performance. That is, gaining a comparative advantage in the U.S. through strategic
factors depends crucially on R&D activity. R&D interacts with the firm’s other business
strategies so as to impact a firm’s competitive position relative to competitors in the
high-tech industries. However, the regression model exhibits of no significance for
Japanese firms. That is, the moderating effects of R&D does not increase predictability
of market performance for Japanese firms. Overall the results of moderated regression
confirm the second hypothesis for U.S. firms but do not confirm it for Japanese firms.
Although the relationships between R&D and market performance are likely
moderated by other business strategies, the market growth may not vary with the degree
of R&D activity in all countries. In Japan, R&D is critical to promoting export activity
for market growth but its moderating role is not significant. In sum, R&D behaves
as a moderator of a firm’s performance in U.S. but not in Japan. However, even in
Japan, R&D activity may serve as a catalyst for gaining a firm’s competitive advantage
when it supports other strategic factors such as advertising intensity, firm size, capital
expenditures, labor productivity, and foreign exports.

TABLE 5
Moderated Regression Analysis
for Moderating Effects of R&D
us Japan

Restricted Model” 0.3389 0.5114

Unrestricted Modelb 0.5891 0.5841
Change in R-squares 0.2501 0.0727
F-Ratio 4.3604** 0.0038

Notes: a R-square in the Restricted model (competitive power factors and

Research and Development activity variable)
b R-square in the Unrestricted (Full) model (Competitive power factors,
R&D, and interaction variables)
* p < 0.05; ** p < 0.01; *** p < 0.001.
R&D Effects on US & Japanese Hi Tech Corporate Growth 189

CONCLUSION

The relationships between R&D expenditures and firm market performance in sales
growth are explored for U.S. and Japanese high-tech firms. The findings show that
the relationship between R&D activity and market growth is positive and significant
in both countries. This finding is consistent with a majority of earlier studies (Erickson
& Jacobson, 1992; Johnson & Pazderka, 1993; Long & Ravenscraft, 1993; Morbey
& Reithner, 1990; Scherer & Ross, 1990).
An effective deployment of R&D in a high-tech industry helps to enhance market
growth that build a sustainable competitive advantage in a long term. This study also
examined the moderating effects of R&D activity on the firm’s competitive forces and
market growth of the U.S. and Japanese high-tech industries. The U.S. firms’ growth
related to the selected strategies is moderated by the R&D activity, while the relationship
are not significant for Japanese high-tech firms. The conceptual linkage between the
strategic variables and market performance (MGRS) does not seem to be uniformly
masked by moderating role of R&D activity.
From a policy perspective, the results of this study may cast some lights on the
question of whether R&D activity per se is linked to gaining a firm’s competitive edge
across countries. Effective management of the R&D function requires a strategic and
operational partnership with other business functions (David, 1994; Rouseel, Saad, &
Erickson, 199 1). In fact, the significance of R&D may vary greatly depending on whether
R&D becomes the driving force behind a firm’s competitive strategy.
In order to examine the effects of R&D on market growth and its moderating role,
another index of R&D measure may be needed. R&D expenditure per employee could
serve as better proxy for innovation of products. Because the actual number of
employees tends to have less short-term variability than current period sales. The R&D
expenditure per employee may be a more robust measure in determining a long-term
commitment to innovation focused on the market growth (Morbey & Reithner, 1990).
A high-tech firm’s performance represented by sales is hinged by the competitive
forces such as foreign market penetration by export policy, labor productivity,
advertising intensity, debt leverage, capital spending, and effective use of capital. To
create an enduring competitive advantage, we must learn to develop effective strategies.
Future research could be benelitted from the use of additional strategic factors such
as product and international diversification. These variables would be robust in
explaining market performance of high-tech firms because the long-run competitiveness
may rely largely on the firm’s ability to meet international challenges through better
product development and process innovation (Hitt & Ireland, 1986).
This study is correlational. Therefore, any causal inferences should be made with
caution. A longitudinal model should be employed to test its causal linkages among
the competitive strategies including R&D intensity, because of its time lag effect of R&D
on performance (Fryxell, 1990; Ito & Pucik, 1993; Ravenscraft & Scherer, 1982).
Finally, this study can be extended with samples of other industries (e.g., non high-
tech based industries) in order to generalize the finding of this study. The study using
other industry samples will help us in finding the existence of a general relationship
between R&D and market growth. The existence of the relationship between firm
performance and R&D expenditures will also help us in justifying R&D related
expenditures. The extension of the study could be conducted with different industry
190 THE JOURNAL OF HIGH TECHNOLOGY MANAGEMENT RESEARCH Vol. ~/NO. 2/ 1995

samples and longer time periods and other performance measures. The future research
would clarify not only the generalization of the findings, but also provide additional
insight into the strategic effects of R&D on a firm’s profit and market growth.

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