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Scholars have developed a large and robust literature examining the impact of IT on firm innovation. However, this literature often produces divergent, likely context-dependent, results and tends to be limited to developed economies. As a result, we have only partial knowledge about how IT use impacts product innovation. This study rectifies that deficiency and resolves prior divergent findings by employing fuzzy set Qualitative Comparative Analysis (fsQCA) to investigate the contingent effects of IT use for exploration and exploitation on product innovation in China, which is transitioning from a centrally planned economy to a market economy. We draw on a unique sample of 262 Chinese manufacturing firms that responded to the World Bank’s Enterprise Survey and developed several configurations of conditions where IT use fostered product innovation depending on the institutional characteristics of a transitional economy, specifically its degree of market competitiveness and legal enforcement. Our findings share similarities to prior studies set in developed economies, while demonstrating features unique to a transition economy. Using a configurational approach reveals the combinational and asymmetric relationships among IT use, the institutional environment, and resultant product innovation. This helps understand situational characteristics often unexamined in prior studies and complements the findings from regression-based studies.

The Contingent Effect of IT Use on Product Innovation in the Transition Economy: A Qualitative Comparative Analysis