LAUSR

Small- and medium-sized consignees (SMCs), due to the contractual nature of their manufacturing processes with their consignors, may find it difficult to innovate. Drawing on theoretical frameworks of recombinant search and absorptive capacity, we assess how the distance of technological search, technological diversity, and brand focus (the ratio of own products to consigned products) mitigate the negative effects of contract manufacturing on incremental or radical innovation. Using patent data from 86 SMCs in the Yuci household appliance cluster of China over the period of 2006–2011, the results indicate that distant search is positively associated with radical innovation when the ratio of related technological diversity to technological diversity (RTD ratio) is low, but not when RTD ratio is high. In addition, a stronger positive relationship exists between distant search and the incremental innovation in SMCs under strong branding focus and low RTD ratio compared with other configurations of branding focus and RTD ratio.