A New Measure of International Product Innovation

It is important for firms to undertake product innovation since this will enable them to incorporate additional value to its market offer and, consequently, will increase their international competitiveness. Thus, the aim of this article is to develop a new index, the Export Product Innovation Index (EPII), a metric that associates product innovation to export activity according to the value of new export products / goods traded abroad at a single company level. The proposed index is built on official export data and based on the Harmonized System Codes. Therefore, the EPII may be widely generalized and calculated for every export firm all over the world for which export shipping data is available, enabling benchmarks for companies, international comparative studies and policy making. This article uses data on Chilean fruit exporters to illustrate EPII calculation and use. Through the comparison of this new index with some previous ones measuring product innovation overall population of Chilean fruit exporters, it is demonstrated that the EPII provides more accurate information to appraise a firm´s export product innovation performance.


Introduction
Various theoretical frameworks address sources of value creation (Amit & Zott, 2011). In the scope of export business, the question is: Which sources of value are of particular importance? Hence, we first measure the export product innovation through a new index.
Although recent decades have seen the emergence of innovation indexes applied to different types of innovation, levels of aggregation and sources of data, in the export context there have been few studies on the elaboration of individual innovation indexes. In the literature, the most studied types of innovation refer to production, processing, management and marketing (OECD, 2005). However, when it comes to exports, product innovation allows us to capture most accurately the results of this activity. Therefore, this research will be focused on product innovation.
Why choose product innovation among the different types of innovation outputs? It is considered to be the most important kind of innovation. since it is said to be an antecedent of any firm innovation strategy of the firm. In the words of Boer and During (2001), "in most cases the main motive for starting the innovation A new measure of international product innovation often driven by the demands of just one customer, or the desire to penetrate new markets by developing new products or adapting existing products" (p. 14).
Thus, the objective of this article is to develop a new index, the Export Product Innovation Index (EPII), a metric that associates product innovation to export activity according to the value of new products traded abroad by export firms over time.
The purpose of this new index (EPII) is to define a product innovation metric associated with firms' export activity. It is an approach that seeks to capture product innovation in international markets and to contribute to traditional product innovation indicators as well. Dutta, Lanvin and Wunsch-Vincent (2017) also refers to this gap, which is both conceptual and empirical, in the annual editions of the Global Innovation Index (GII): "finding metrics that capture innovation as it happens in today's world remains a key challenge, since direct official measures that quantify innovation outputs are still scarce". Thus, the present article contributes to narrowing down such gaps by focusing on product innovation from an export perspective, since most studies focus on classical indicators of innovation (e.g. R&D investment per year, number of patents registered per year, etc.) The EPII is proposed as a way of measuring how much export value is created by product innovations by a company, measured by its impact on total export revenues. It is not a full model with causal or enabling factors, but a performance measure based on official data, which enables us to compare individual firms, build a ranking and identify case studies for future research on the underlying factors for the EPII index level achieved. EPII is proposed in such a way that it can be calculated using existing governmental data in most countries. Moreover, the article brings empirical results which add to official statistics on the amount of innovative activity in a given sector (fruit), and country level (Chile). Chile is the leading fruit exporter in the southern hemisphere and the world's leading exporter of table grapes and blueberries. The Chilean fruit area occupies 294,000 hectares, the sector produces around 5 million tons of fruit, of which 2.6 million are exported as fresh fruit, generating more than USD 4,000 million annually. (ODEPA, 2018). Product innovation is espe-cially significant for fruit producers from Chile, who mostly sell standardized products to international intermediaries and therefore with limited profitability. Moreover, small size companies, which predominate in a country like Chile, are the type of organizations carrying out mainly product innovations (Boer & During, 2001).
Thus, for the empirical example and analysis, we have used as our example a country with a clear exporting vocation -Chile -and a sector that is relevant for this country in its international performance -the fruit sector.
The motivations behind this research are first that innovation is important to boost economic progress and competitiveness. In the field of international business, many governments are putting export promotion and innovation at the centre of their growth strategies.
Second, there is the awareness that the definition of innovation has been broadened to recognize innovation in more areas, and we seek to provide an indicator of product innovation based on export markets, which is a topic that has not been treated in the literature.
The EPII provides a key tool that uses detailed metrics based on the international definitions of the Harmonized Commodity Designation and Coding System (HS) of the World Customs Organization (WCO). The innovative activity of exporting firms enables export promotion policies to be refined.
The rest of the paper is organized as follows: section 2 reviews the literature related to innovation indexes; section 3 establishes the conceptual foundations of the proposed index; section 4 provides its formulation and an example of its calculation; section 5 offers the results and an empirical comparison with other indexes of innovation are presented; finally, section 6 gives the discussion and conclusions.

Innovation Indexes
Innovation, and in particular its measurement, has been approached from a wide number of perspectives.
These belong to two groups, according to the public or private objectives that the measure seeks to achieve,  On the other hand, the Global Innovation Index (GII) attempts to explain relative country performances by a conceptual and operational data model that measures five enabling pillars and two innovation outputs which compose the conceptual model. Thus, it considers export as an output of innovation, not an antecedent.
According to this index, exports, and only those of the high tech products, are part of the output pillar "Knowledge & technology outputs", which encompasses three sub-pillars. To compose the "third subpillar, namely knowledge diffusion, the GII includes: Our study adopts the same perspective as the GII, considering export as an output, but not limited to high-tech products. Our literature review found a few scientific publications studying innovation in the export scenario, but none on how the indexes are elaborated. To address this gap, this article develops a new index, the Export Product Innovation Index (EPII), a metric that associates innovation to export activity by the value of new products traded abroad by exporting firms over time.
In doing so, we return to the basics, to the definition given by the Oslo Manual developed by the European

Communities and the Organization for Economic
Co-operation and Development (OECD): "An innovation is the implementation of a new or significantly improved product (good or service), a new process, a new marketing method, or a new organizational method in business practices, workplace organization, or external relations" (OECD, 2005, p. 146). Thus, in considering innovation, we consider not only the traditional categories of incremental and radical innovation, but innovation that change the architecture of a product without changing its components (Henderson & Clark, 1990).
We argue that there are indirect official measures that quantify innovation outputs available that may build a metric that captures innovation outputs as they occur in the world today, and so address the gap, stated by Dutta et al. (2017), and hence, accomplish the stated objective of this article.

EPII calculation is based on the Harmonized System
Code (HS Code). This index is conceptualized so as to be calculated at a single company level, based on official export data, and described by the HS Code, which is the most successful legally binding instrument of the World Customs Organization (WCO) and is a code used worldwide and consists of six digits.

Harmonized System or HS (WCO, 2018a)
The Harmonized Commodity Description and Coding System generally, referred to as "Harmonized System" or simply "HS", is a multipurpose international product nomenclature developed by the World Customs Organization (WCO). It comprises about 5,000 commodity groups, each identified by a six-digit code, arranged in a legal and logical structure and is supported by well-defined rules for uniform classification.

HS Nomenclature (2017 edition) (WCO, 2018c)
The text of the The EPII is used to measure the relative weight that the introduction of new products has in the exports of a company. If the company shows EPII in the year, it means that it has done a previous job to be able to export new products, so it is innovating to cover a larger market and meet the demand that they have abroad for those products. A higher the EPII means that there is a higher percentage of exports due to the innovation of new products.
The EPII allows an appraisal of the innovative behaviour of companies over the years in relation to exports, which can be used to generate public policies, promotion programs and benchmarks for goal setting.
At a more aggregate level, EPII can provide an overview of innovation export trends in the country.
The EPII may take values from 0% to 100%, where 0% indicates that the company has not introduced new products in a given year, and 100% indicates that all of the exports of the company are due to the introduction of new goods.

EPII Components
➢ Product / Good = materials and/or products, which can be wholly obtained or produced, even if they are intended for later use as materials in another production process, need to be included.
The terms "goods" and "products" can be used in-

EPII Calculation
For an individual (specific) export company ➢ For a year t: We can identify products / goods that a company exports, measured by the number of products / goods calculated according to the number of different HS that the company exports (by their FOB value).

➢ For a year t+1
We want to know if the company innovates in its prod- year, allowing us to measure the degree of innovation in companies, sectors and even countries over time. The EPII seeks to show the degree of innovation over time of the firms, and with this we intend to estimate the innovation profile of the firm in its export activity, and thus also analyze the creation of value of both the company and of a particular sector.
The conceptual definition of "Export Product Innovation" is the Innovation due to the incorporation of a new HS code in the firm's export portfolio between one year and another.

EPII example
For the example we analyze a Chilean exporting company exporting fruit and its exports in 2011 and 2012.
Fruit exports are classified under chapter 8 of the HS.
Taking into account the calculation algorithm of the EPII and having the following data (See Table 2

Results
In

Discussion and conclusions
The objective of this article was to develop a new index, the EPII, a metric that associates innovation to export activity by the value of new products / goods traded abroad by exporting firms. Since Chile is a largely export-oriented economy -specially the fruit sector where it is a world leader in exports-, and its firms address a deep concern of lack of added value in their products, which we argue can be solved with product innovation, we have applied the analysis to a sample of Chilean fruit manufacturers.  decisions regarding the allocation of public funds to improve the innovative performance of certain industrial sectors and the promotion of exports. At a company level, the EPII allows us to measure the degree of innovation in the company's export activity and its role in the firm's export performance. Thus, managers can use this measure to identify if the firm really faces a lack of innovation problem, and therefore how the firm may improve its competiveness. Additionally, the new products innovation activity (measured through the EPII) allows the firm to overcome its traditional core capabilities that may be named core rigidities since they usually limit these disruptive new projects (Leonard-Barton, 1992).
The main limitations are now detailed. First, the index algorithm is based only on one innovation final output (product innovation) and does not consider other ways of innovating (such as process, marketing, …). Second, we focus only on one mode of entry (exports), in one country (Chile) and in one sector (fruit exports). This may limit the generalization of the results. Other industrial sectors may present results based on their own characteristics, such as the specific Regional Innovation System, their innovative culture, technological paradigms, regulatory aspects, etc. As a consequence, as future lines of research we suggest applying this research to other contexts.
Additionally, since product development is a dynamic capability that requires to involve some routines for superior performance, as a cross functional team (Eisenhardt & Martin, 2000). In this line, Ardito and Petruzzelli (2017) analyze the role of strategic HR practices on product innovation. Consequently, further research could target not only the gathering of new products but also the study of all these complementary routines and practices.