Is More Always Better? External Consultants and Firm Innovation in Emerging Markets

I analyse the relationship between hiring external consultants and firm innovation in emerging markets. Firms in these economic environments face specific problems that hinder organizational activities such as innovation. Hiring external consultants is considered a particularly important strategy to overcome these corporate inefficiencies as it provides firms with access to skills and knowledge. The results for a sample of firms from 32 countries imply that firms that hire external consultants are more likely to conduct product and process innovation. Moreover, the use of advisory services is positively associated with the likelihood of undertaking more ambitious innovation projects in terms of disruptiveness and the number of innovation types. Determining the impact of the consulting intensity, I show that the relation between the number of interactions with external consultants and innovation is inversely U-shaped. This implies that more consulting is not always better.