External Consultants and Innovation

This paper analyzes the impact of external consultants on the innovation behavior of firms in emerging markets. Firms in these markets face particular problems which hamper organizational activities like innovation. Making use of business consultants provides firms with access to skills and knowledge to improve firm operations. Thus, the hiring of external consultants serves as a measure for firms in emerging markets to increase their innovation outcomes. Results for a sample of firms from emerging economies shows that utilizing external consultants indeed leads to a higher probability to carry out an innovation. This holds for product and process innovation, but also for innovation in management and marketing. Additional results show that the impact of the number of visits on innovation is found to be inversely-U-shaped. While the probability of performing an innovation is the highest at the turning point of the inverted-U, the first consultant visit provides the largest benefit. Thus, the findings imply that more is not always better. In addition, firms, which seek business skill or project management improvements, benefit particularly from hiring external consultants.