Empirical Evidence on the Success of R&D Cooperation—Happy Together?

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Dis cus si on Paper No. 06-059
Empirical Evidence on the
Success of R&D Co-operation –
Happy together?
Birgit Aschhoff and Tobias Schmidt

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Dis cus si on Paper No. 06-059
Empirical Evidence on the
Success of R&D Co-operation –
Happy together?
Birgit Aschhoff and Tobias Schmidt
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Non-technical summary
R&D co-operation has become an important organisational component in the
innovation process. In recent years more and more firms have become involved
in collaborative relationships with a variety of partners, from suppliers to
customers and research institutes. The trend towards R&D co-operation has
motivated researchers to empirically investigate the effects related to
collaboration in firms. Most of them have dealt with input related motives for
and effects surrounding R&D co-operation at the firm level, which include
knowledge spillovers, access to complementary knowledge or cost- and risk-
sharing in innovation projects. The output or rather the outcome of a co-operative
agreement in terms of technological and economic success is at least equally
important. In order to evaluate an R&D co-operation economically, its effect on
the firm’s economic success should be measured.
This paper contributes to the empirical work on the benefits of R&D co-
operation by assessing how much firms profit from co-operative agreements with
external partners. In so doing we distinguish between the specific contributions
of four different co-operation partners: customers, suppliers, competitors and
research institutions. We investigate the effect of past R&D co-operation on
current success with innovations (sales of innovative products and cost
reductions due to process innovations). Specific attention will be given to the
effect of R&D co-operation on cost reductions brought about by innovations, a
topic widely discussed in the theoretical literature but neglected until now in the
empirical literature on the output of co-operation.
Our empirical analysis rests on firm level data from the annual German
innovation survey, using two consecutive waves of the survey (Mannheim
Innovation Panel of 2004 and 2005), which covers service and manufacturing
industries. We apply a censored regression model to the data and find that R&D
cooperation has a positive impact on the success of process innovations and sales
of products new to the market, but no significant effect on sales of product
imitations. By distinguishing between co-operations with different types of
partners, we identify co-operation with competitors as being profitable in terms
of cost reduction. If firms aim to develop products new to the market, co-
operations with research institutes are helpful. However, we found no evidence
of any positive effect of cooperation with competitors on the share of total sales a
firm achieves with market novelties. R&D co-operations with suppliers and
customers do not have a significant impact on any of the three measures of
success.

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Empirical Evidence on the Success of R&D Co-operation –
Happy together?

Birgit Aschhoff1
Tobias Schmidt2
Abstract
In this paper we analyse the effect of R&D co-operation on firms’ innovation
performance. We investigate the effect of past co-operation on current sales of
innovative products, distinguishing between products new to the firm and new to
the market, and on cost reductions due to innovative processes. Particular
attention is paid to the impact of different co-operation partners. The analysis
rests on firm-level data from two consecutive waves of the annual German
innovation survey. We find that innovative firms that cooperate have a higher
share of turnover with market novelties and a higher share of cost reduction due
to process innovations than non-cooperating firms. In particular, R&D co-
operation with research institutes has a positive influence on a firm's economic
success with market novelties, while R&D co-operation with competitors leads to
an increase in the cost reduction attributable to innovative processes.
Keywords: R&D Co-operation, Innovation Success, Germany, Applied Econometrics
JEL-Codes: L25, O31, C24
Centre for European Economic Research (ZEW), Department of Industrial Economics and
International Management, P.O. Box 10 34 43, D-68034 Mannheim, Germany
1 aschhoff@zew.de, Tel.:+49-621-1235-182, Fax: +49-621-1235-170
2 schmidt@zew.de, Tel.:+49-621-1235-235, Fax: +49-621-1235-170


The author would like to thank Dr. Georg Licht, Dr. Christian Rammer, Dr. Bettina Peters, and
Wolfgang Sofka for valuable comments. This paper was presented at the 1st INIR doctoral day (2005) and
the European Network on Industrial Policy (EUNIP) Conference (2006).

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1
1
Introduction
Co-operation has become an important organisational component of the
innovation process. In recent years more and more firms have become involved
in collaborative relationships with a variety of partners, from suppliers to
customers and research institutes. This surge in co-operative agreements
pertaining to innovation activities has been documented by Hagedoorn (2002)
among others. In addition, public support policies adopted by national authorities
and the European Union since the end of the 1980s (e.g. BMBF 1988) have
explicitly encouraged the formation of co-operations in R&D and innovation
projects. The trend towards co-operation has motivated researchers to empirically
investigate the causes and effects of collaboration in firms (e.g. Cassiman and
Veugelers, 2002). Most of them have dealt with input related motives for and
effects related to R&D co-operation at the firm level, which include knowledge
spillovers, access to complementary knowledge or cost- and risk-sharing in
innovation projects. As these inputs into the innovation process have become
more important in recent years so has co-operation.
However, the motives for firms to cooperate in R&D are not restricted to the
input side. The output or rather the outcome of a co-operative agreement in terms
of technological and economic success is at least equally important. In order to
evaluate economically an R&D co-operation, its effect on the firm’s economic
success should be measured. Firms benefit from a co-operation if the co-
operation positively affects their economic success sufficiently that it can be
assumed that the costs of a co-operation, e.g. transaction costs, are outweighed.
Thus, it is important to analyse the effects of co-operation on outcome measures
in addition to its effects on inputs.
In the theoretical literature considerable effort has been put into the
identification of the effects and benefits of co-operation. D'Aspremont and
Jacquemin’s (1988; 1990) model has been the basis for many other researchers
investigating the effect of co-operation and spillovers on R&D investment,
output and profits. Empirical literature on the innovative and economic success
of R&D co-operation is still relatively scarce but has been growing in recent
years (see e.g. Lööf and Broström, 2004; Belderbos et al., 2004b).
This paper contributes to the empirical work on the benefits of co-operations on
the outcome side by assessing the extent to which firms profit from forming co-
operative agreements with external partners. In so doing we distinguish between
the specific contributions of four different co-operation partners. In contrast to
other studies, which are concerned with the effect of R&D co-operation on
productivity and spillovers (e.g. Cincera et al., 2003; Belderbos et al., 2004b),
our goal is to investigate the effect of past co-operation on current success with