Differences in Creating Product Innovations versus Process Innovations across European Industries

The innovative performance of 1,200 representative firms in the Czech Republic, Germany, Hungary, Poland, Romania and the Slovak Republic was analyzed. The study differentiates between product innovation and three different forms of process innovations. This data was joined to the quality of societal institutions of the country containing the firms. Results show that institutional quality is correlated with the innovative performance of firms through different channels. With respect to product innovations, institutional quality exhibits mediate effects through financing of R&D and the design of the organizational structure, with larger technical / R&D departments being found in firms in environments of high societal quality. However when investigating process innovations, the pattern is surprisingly different: firms located in European countries with a relatively low score regarding institutional quality, develop predominantly more process innovations. We speculate that this is the result of the characteristics of competition in countries with a relatively poor quality of institutions. With regard to industrial sector, the data reveals that firms in the wholesale and trade areas follow quite different patterns compared to firms involved in manufacturing/production. Manufacturing firms make predominantly product innovations and these are often financed by external sources, whereas firms in wholesale and trade make more process innovations and these tend to be financed by internal sources