The effect of R&D novelty and openness decision on firms' catch-up performance: Empirical evidence from China

• Technological catch-up is associated with the R&D decisions in novelty and openness dimensions.
• Firms' R&D decisions towards novelty and openness are associated with demand opportunities, market competition, technological capability and external network.
• Greater degrees of R&D novelty contribute positively to innovative output, but do not affect sales growth.
• Greater R&D openness contributes positively to sales growth, but negatively to innovative output.

This paper explores the strategic dimensions of R&D decisions toward novelty and openness in explaining the performance of latecomer firms in a developing economy. A structural equation model of R&D decision-making is formulated using survey data from 279 Chinese firms. The dimension of R&D novelty is defined as the degree of technological newness found in firms' R&D projects, while R&D openness describes the degree to which technologies are acquired from external sources. Our results indicate that firms' R&D decisions regarding novelty and openness are associated with demand opportunities, market competition, technological capability, and external networks. Greater R&D novelty contributes positively to innovative output but does not affect sales growth. Greater R&D openness contributes positively to sales growth but negatively to innovative output.