Opening the Black-Box between HRM and Firm Innovation: The Moderating Effect of Power Distance

This paper examines the mechanism through which human resource management (HRM) promote firms’ product and process innovation. Based on a dataset of 3,755 firms from 13 countries, we find that in most countries HRM practices that are supportive of employees and facilitate communications between management and employees enhance firms’ market-sensing capability, which in turn significantly contributes to product and process innovation. Furthermore, a cross-country examination reveals that in high power distance countries these HRM practices have a stronger positive effect than in low power distance countries. This study contributes to the HRM-innovation literature by demonstrating the necessity to incorporate markets as sources of knowledge. Furthermore, we join the discussion on the generalizability of management theories and contribute to the international management literature.