High-Tech Entry and Customer Innovation: Evidence from AI-Augmented Supply Chain Collaboration

This is the authors' abstract. We don't add key points for this paper.

As artificial intelligence (AI) continues to reshape global supply chain dynamics, understanding how supplier entry by high-tech firms interacts with AI adoption has become a critical pathway for fostering customer innovation. This study develops a theoretical framework that incorporates supplier-side entry, AI-augmented production technologies, and firm-level cost structures, grounded in both production cost and market demand functions. Leveraging a unique panel dataset of 37,631 firm-year observations in China from 2007 to 2023, we employ a difference-in-differences (DID) approach to empirically identify the impact of AI adoption by high-tech suppliers on customer innovation outcomes. Our analysis yields three main findings. (i) After entering customer supply chains, high-tech firms that adopt AI significantly improve the innovation performance of their customer firms. (ii) The effect of AI-enabled supply chain integration is stronger for firms in SME-oriented segments and highly competitive industries, and is mainly reflected in the increase of invention patents. (iii) Mechanism analyses associate AI-enabled supplier entry with lower R&D expenditure per patent application and greater participation in joint innovation alliances, consistent with improved innovation efficiency and interfirm coordination.