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Paper short abstract

Using 2006–2010 firm data from 19 Latin American countries, I show digital servitisation exports boost incremental and market-novel innovation, especially when firms institutionalise digital knowledge routines (FDKAI) and invest in R&D and training.

Paper long abstract

Manufacturers increasingly pair products with digitally delivered services for foreign customers, yet we know little about how these Digital Servitisation Exports (DSE) reshape firm innovation in developing economies. Using firm-level data on 19 Latin American countries’ manufacturers in 2006 and 2010, I introduce a practical DSE measure and a Firm Digital Knowledge Acquisition Index (FDKAI) that captures routines and platforms for sourcing foreign knowledge through digital channels. To address selection, I combine entropy balancing, logit models with country, industry, and year fixed effects, and Oster’s coefficient-stability bounds in estimating DSE-innovation outcomes relationships. Three takeaways emerge. First, DSE is associated with more innovation of both kinds: incremental improvements that refine existing offerings (exploitative) and market-novel solutions that push the frontier (exploratory). Second, the innovation payoffs from DSE arise not from digital exposure alone but from complementarities: firms convert foreign digital knowledge into innovation outcomes when FDKAI works in bundles with conversion capabilities such as R&D and structured employee training. Third, exploratory innovation demands a richer bundle than exploitative innovation, suggesting that stronger conversion capabilities are required to turn DSE-enabled incremental gains into market-novel breakthroughs. These findings underscore that manufacturers in developing countries should treat DSE not merely as a sales route but as an engineered learning system, for which they should institutionalise platform-mediated workflows and invest in R&D and employee training.