Environmental Forces underneath the Innovativeness of Manufacturing Firms

This paper examines holistically how the competitive dynamics of the market invites and stimulates manufacturing firms to take innovative actions and which of the nearly twenty environmental factors empirically identified in the literature actually dominates the firms’ innovation. After developing a general definition of innovation in the manufacturing sector, two main results are established with the thinking logic of systems science and the rigor of game theory. One result is on when the market signals its invitation for innovation; and the second result is about why innovation is the only way for firms’ survival. By using these results and the systemic yoyo model, we identify four dominating environmental determinants on innovation of manufacturing firms—demand growth, proximity, networking, and government and public sector policies. Our results allow us to offer both theoretical and practical implications for managers and policy makers.