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In recent years, growing competition and environmental sustainability concerns have driven businesses to rely heavily on many aspects of the green revolution (Liu, 2020c). Green innovation (GI) is one such aspect that might allow companies to enhance competitiveness and meet stakeholders’ demands. At the same time, GI could allow companies to meet environmental requirements and perhaps gain competitive advantages. But increasing speed of technology evolution today demands that companies augment their GI capabilities (Tseng et al. 2013). In addition, uncertainties such as rapidly changing markets, fluctuating demand, technological disruptions, and increasing R&D costs, are likely to manifest in GI’s impact on company operations (Liu et al., 2018; Paulraj and Chen, 2007). Therefore, it is critical to understand GI’s underlying drivers in order to uncover viable ways managers can acquire and deploy the resources necessary to improve it and reduce its associated risks.
The concept of green innovation has been studied at length. Many studies have focused on external GI drivers such as government regulations and other environmental factors (Provasnek et al., 2017; Yu et al., 2017). However, the strategic management and organizational behavior literature posit that innovation is primarily a process of knowledge management (DeCarolis and Deeds, 1999; Miller et al., 2007).
Institutional knowledge plays a compelling role in company innovation. The organizational learning literature emphasizes the importance of elevating employees’ specialized knowledge up to the organizational level (Hedberg, 1981; Martin, 1982; Lawrence & Dyer, 1983; Fiol & Lyles, 1985). Those studies suggest that knowledge integration is a key determinant of a company’s innovation performance (Liu, 2020a; Mitchell, 2006; Okhuysen & Eisenhardt, 2002). In addition, uncertainties and changing external conditions require companies to sense, acquire, interpret, and deploy knowledge from external sources as well (Ettlie & Reza, 1992; Li, et al., 2019; Tiwana et al., 2003). External knowledge integration provides a process for acquiring useful knowledge of the competitive environment and helps companies better collaborate with their supply chain partners.
The theory of dynamic capabilities indicates that a firm’s performance is linked to its capabilities for timely responsiveness to contingencies and effective synthesis of internal and external knowledge (Teece, et al. 1997). Therefore, identifying how external and internal knowledge integration affects GI can help companies effectively integrate and organize external and internal resources to improve their innovation capabilities. This is the underlying rationale for our study. Its purposes are two-fold: first, to investigate the effects of external and internal knowledge integration on GI behavior, and how green product and process innovation mediates these effects; and second, to test their indirect effect on financial performance.
Drawing on the theories of organizational learning and dynamic capabilities, this study proposes that knowledge integration is a key component of knowledge generation and positively affects companies’ innovation behaviors and financial performance. The authors empirically examined these relationships using data from 231 Chinese companies. This study differs from previous work in the following three ways: First, it applies theories of organizational and strategic management to GI scenarios and provides a conceptual framework to identify the role of knowledge integration in improving companies’ GI. Second, by dividing knowledge integration into internal and external factors, and dividing GI into product and process, this study more fully captures the relationship between knowledge integration and GI. Third, the study tests the direct and indirect effects of knowledge integration on company financial performance and investigates how knowledge management affects green innovation and financial performance.