“Market structures, strategy and innovation in services. A study applied to the tourism sector”

Abstract

Pursuing an innovation strategy is fundamental in the arsenal of firms to compete in global markets with differences in the innovation capability explaining to a large extent differences across economic performances and welfare (Fagerberg, 2005). Yet the innovation process is still not well understood or explained, and it remains important to know which strategies firms should pursue to develop new products and the way the outcomes of those decisions play out in the market place. Adding to our yet incomplete understanding of innovation and the way it works through firm outcomes, is an greater incomprehension of innovation in service sector (European Commission, 2004; Fagerberg, 2005; Gronröös, 1990; United Nations, 2004). This is ever more important given the essential role that the service sector plays, especially in more developed economies. The heterogeneity of this sector is one of the factors which creates difficulties, particularly in the tourism sector. The objectives of this paper are two fold – first we discuss innovation in the service sector, especially in tourism, an area little understood and analyzed in the context of innovation. Secondly, we apply the diagnostic test of the integrated model of innovation (Sarkar 2005, 2007) to present the results of an empirical study applied to the tourism in a small open economy, Portugal. In the empirical study we divide Portuguese regions according to the tourism firms degree of geographical agglomeration, analyzing understand the linkage between product (service) market structures and innovation strategies. We use a unique data set consisting of survey responses from 125 firms, to understand, what we believe to be the first attempt of its kind, perceptions regarding innovation in different market archetypes and the market outcome resulting from the innovation strategies pursued and we compare similarities and differences between firms. The methodology applying a multivariate analyse (principal component analysis) sequentially to reduce the sample multidimensionality to obtain a set of key variables that explain innovation in tourism firms. We conclude with a set of considerations and believe that our seminal approach provides an impetus in theoretical and empirical research with respect to innovation in the tourism firms.