The Relationship between customer leverage and process innovation: an empirical investigation in global manufacturing industry

Purpose: With the current unpredictable and turbulent business environment, manufacturers are leveraging customer knowledge as the source of innovation and competitive advantage. Drawing upon the knowledge-based view, this study argues that customer leverage is the source of firms' process innovation and has a positive impact on manufacturing performance.

Design/methodology/approach: The empirical study included results from 650 manufacturers in 10 countries, including more than twenty manufacturing industries. The conceptual framework and hypotheses are then derived from literature review, in particular, the theory of knowledge-based view and transaction cost economics. A structural equation model was used to test the hypotheses.

Findings: The empirical results showed a strong association between a manufacturing firm's customer leverage and its process innovation and performance. Process innovation acts as mediating roles in absorbing and transforming customer knowledge in improving costs and financial measures. In a more dynamic market, customer leverage strengthens the positive impacts on process innovation.

Research/practical implications: These results extend the limited existing research on global manufacturing context that the customer knowledge are effective sources for increasing innovative processes. The higher the market turbulence, the stronger the pressures for customer leverage demanded by process innovation. The findings also confirm that process innovation plays a mediating role in absorbing and transforming customer knowledge in improving costs and financial measures. This is an important result that highlights the mechanism by which customer knowledge can influence a firm's bottom line.

Originality/value: This study examined the linkages between a marketing concept and operations and supply chain management.