Technology Innovation Motivation And Paths Of Firms Pursuing Cost Leadership Strategy

With the rapid change of domestic and international industrial environment, especially the rising of the prices of such factors as labors, raw materials and lands, Chinese firms’ cost leadership strategy based on exogenous low cost factors faces severe challenges. Endogenous low cost driven by technology innovation is an effective way for Chinese firms to break through the current difficulties and achieve sustainable development. This paper investigated the innovation motivation and incentive, technical capacity constraints and innovation path optimization of cost leadership strategy firms on the basis of strategic management and technology innovation theory, with game theory model and the characteristics of domestic and international industrial environment.(1)Given the firms’ different strategies, the impact of product differentiation on innovation behavior of the cost leadership strategy firms is researched. The study shows that when the horizontal difference exists in duopoly firms products, both enterprises will reduce the production cost through technological innovation; price discrimination is a dominant strategy for both firms to obtain excess profit. The cost leadership strategy firm has the strongest innovation motivation when only itself adopts discriminatory pricing in the market. When the competitors also adopt discriminatory pricing, the firm shows obvious "innovation inertia." Under the equilibrium pricing strategy, there is a positive correlation between enterprise profit and the level of technology spillovers. Moderate technology spillover is beneficial to improve the social welfare, while excessive technology spillover will decrease social welfare. When the vertical difference exists in duopoly firms products, the higher the product differentiation, the stronger the “innovation inertia” of cost leadership strategy enterprises is. Further evolutionary game analysis indicates that when the probability of differentiation strategy enterprises to increase innovation investment is high, cost leadership strategy firms’ evolutionary stable equilibrium strategy is to reduce innovation investment; and when the probability of differentiation strategy enterprises to reduce innovation investment is high, cost leading strategy enterprises’ evolutionary stable equilibrium strategy is to increase innovation investment.(2) Combined with the characteristics of domestic industrial environment, the influence of local government behavior on the innovation motivation of cost leadership strategy firms is analyzed. The study found that, guided by the political achievement, low intervention behavior of local government has a positive incentive effect on firm innovation motivation when the market scale is small; when the market size is large, the increment of the degree of intervention from the local government will distort enterprise innovation motivation. In this case, rent-seeking downstream enterprises, enterprises can achieve higher profits through simultaneous horizontal and vertical R&D cooperation, and the problem of interest conflict among cooperative enterprises can be effectively solved by establishing a coordination mechanisms based on satisfaction degree. behavior may occur between local government and enterprises. Rent-seeking not only is a distraction for technology innovation in enterprises, but also has a "crowding out" effect on innovation investment. Guided by the social welfare, local government can alleviate the adverse effects of uncertainty of technology and technology spillover effect on enterprise innovation by implementing the innovation subsidy policy, and effectively regulate the enterprises to carry out technology innovation in accordance with the social optimal investment level. The local government further implements the appropriate environmental regulation policy, which can not only constrain enterprises sewage behavior, but also guide the enterprises to achieve "innovation offset" effect and improve the social welfare.(3) Based on the background that a large number of Chinese firms embed in GVC by OEM, the effects of GVC governance mode on technology innovation motivation of the(cost leadership strategy) OEM firms are investigated. The study found that in predatory GVC governance model, OEM firms are facing an "innovative trap" predicament. Through the introduction of competition mechanism into product markets, the predatory degree of multinational corporations can be reduced, and the innovative enthusiasm of OEM firms will be improved. In the capture type of GVC governance model, the transfer of part technical knowledge to OEM firms is the dominant strategy of multinational corporations; the innovation motivation of OEM firms is positively correlated with the level of rents alienation, and negatively correlated with the level of technology spillovers. In a market-based GVC governance model, both OEM firms and multinational corporations have the motivation of cooperative innovation. At this point, there is an effective range of innovation cost allocation proportion. Only if the innovation investment cost is shared within the range can a win-win situation be achieved. Compared with the rival in the same GVC governance style, OEM firms in partner GVC model will have the innovation enthusiasm driven by a higher level of technology spillover. When competing with the rival in marketing GVC governance model, the strategic synergies between partner GVC enterprises have a positive effect on OEM firms.(4) Considered the dynamic feature of firms technical capability, the enterprise technology acquisition mode and innovation path optimization problem are discussed. The study found that in the low technical capacity stage, firms can enhance their profits in the short term by importing technology at a fixed fee. While a higher level technological achievements can be obtained by the technology importing in the production commission mode. In the high technical capability stage, when the level of technology spillover is low, technology import is still an effective way of technology acquisition for firms with negotiation capacity, and independent R&D is not necessarily the best choice; when the technology spillover level is high, the firms should choose to cooperate in R&D, which is regardless of their negotiation ability. In the presence of two tier market structure with some upstream and...