How modularity influences product innovation

Purpose The purpose of this paper is to offer novel and complementary insights into the relationship between product modularity and product innovation by investigating the mediating role of module suppliers' relationship-specific investments which include both property-based relationship-specific investment (PRSI) and knowledge-based relationship-specific investment (KRSI). Design/methodology/approach This paper is an empirical study based on structural equation modelling, with a sample of 121 core firms of high-tech modular cooperation in China. Findings The findings indicated that product modularity had a significant positive effect on product innovation; product modularity was positively related to module suppliers' PRSI; module suppliers’ KRSI had a direct effect on product innovation while PRSI had an indirect effect on product innovation through KRSI; the relationship between product modularity and product innovation was serially multi-mediated by module suppliers’ PRSI and KRSI. Practical implications Modular product design and modular cooperation governance guidance for core firms and cooperative investment strategies guidance for module suppliers were provided. Originality/value This study is the first attempt to analyse how product modularity affects product innovation in the context of inter-firm modular cooperation by revealing the mediating role of module suppliers' relationship-specific investments.