The design sourcing choice and technological performance in the upscale and downscale markets of an architectural innovation

In this study, we investigate the performance impacts of design sourcing choices in addressing an architectural innovation from its originating market to subsequent markets. We maintain that the effects of design internalization and externalization on the technological performance of firms' products may vary across the originating and subsequent markets with different requisite technological demands due to the dynamics of knowledge spillovers and knowledge exchange hazards in those markets. We hypothesize that design internalization is likely to outperform design externalization when facing an architectural innovation in a subsequent upscale market with a higher technological performance requisite than in the originating market. The case is then reverse in a subsequent downscale market with a lower technological performance requisite. We test our hypotheses in the empirical contexts of the US bicycle markets in which the index gear-shifting technology (i.e., an architectural innovation) originated in the road bicycle market in 1985 and subsequently traversed to the mountain bicycle market (i.e., an upscale market) in 1987 and the city bicycle market (i.e., a downscale market) in 1988. The results are largely in line with our hypotheses. The contributions of our study to the current literature as well as its managerial implications are also discussed.