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Should Firms Outsource their Basic Research? The Impact of Firm Size on In-House versus Outsourced R&D Productivity
Abstract
It has been long known that firms can benefit substantially from basic research. Recently, however, the open innovation literature has questioned whether firms should conduct these basic research activities in-house and has suggested that outsourcing is more appropriate both for small and large firms. However, existing empirical work investigates the performance implications of R&D outsourcing in general, but does not take into account the differences between basic research on the one hand and more applied R&D on the other. This paper therefore studies whether outsourced basic research indeed contributes equally to firm productivity as in-house basic research, while explicitly incorporating the moderating effect of firm size. A production function approach is applied to firm-level data stemming from three waves of the Flemish R&D survey, combined with data from firms' annual accounts. The results show that small firms benefit from outsourcing their basic research activities. For medium-sized and large firms, however, in-house basic research is more productive than outsourced basic research. These results contradict the general belief that small firms benefit little from basic research and cast doubts on the recent trend to close medium-sized and large firms' corporate labs.
... In-house scientific research refers to research activities carried out entirely by corporations themselves. It is the process by which corporations repurpose existing knowledge to create new knowledge, which means they generate, develop, and commercialize their own ideas (Andries and Thorwarth, 2014), reflecting the linkage between scientific and technical knowledge within corporations. Conversely, scientific research outsourced or conducted in collaboration with other institutions is defined as "external scientific research" (Chesbrough et al., 2006), a way for corporations to absorb knowledge from outside and incorporate it into their current knowledge. ...
... When there is a shorter time lag between papers and patents, science and technology can be linked timelier. Furthermore, drawing on concepts from (Andries and Thorwarth, 2014) and (Chesbrough et al., 2006) to distinguish between in-house and external scientific research, we construct scientific research modes according to scientific publications authors. If a paper is completed entirely by a corporation on its own, it is referred to as "in-house scientific research". ...
... We measure it by the number of years between the corporation's inception and the focusing year. Besides, Firm size has a significant impact on its behavior and decision-making (Schumpeter, 1934), hence influence corporate innovation performance (Andries and Thorwarth, 2014). In this study, total assets are taken into account to measure the size of the corporation. ...
Scientific knowledge has been shown to be a key contributor to corporate technological innovation; hence, modern inventive firms place a strong emphasis on scientific research. However, little is known about how the knowledge linkage between science and technology (ST linkage) of corporations fosters their technological innovation. In an effort to fill this vacuum in the literature, we investigate how multiple properties of ST linkage influence corporate technological innovation. We conducted a Zero-inflated Negative Binomial regression using scientific publications, patents, and firm-level data from 671 pharmaceutical and 686 semiconductor corporations to test our hypotheses. We find that the higher the proportion of corporations citing their published scientific publications in patents, the more likely they are to produce more patents, and corporate technological innovation benefits from the utilization of scientific knowledge produced in the early stages. Furthermore, the positive effects of the aforementioned factors on the technological innovation performance of corporations are present in both scientific research strategies (e.g., independent vs. joint research). These findings contribute to the understanding of the underlying mechanism of corporate basic research facilitating technological innovation. This study also provides meaningful advice regarding how corporations can enhance their technological innovation through scientific research.
... Context features. Internal development is more suitable for large companies, since they have the means to set up large-scale in-house research activities and benefit from economies of scale and specialization (Andries and Thorwarth, 2014). In addition, productivity effects of R&D activities increase with firm size in high-tech industries (Czarnitzki and Thorwarth, 2012). ...
... The main difficulty for the outsourcer is to define its core business to allow the delegation of R&D efforts within peripheral knowledge fields to external parties (Ayerbe et al., 2014), also constraining future learning and action, with core capabilities turning into core rigidities (Gadde, 2014). In addition, IP rights resulting from outsourced activities may be difficult to allocate (Andries and Thorwarth, 2014), with a high moral hazard danger that is caused by strong information asymmetries between suppliers and outsourcers (Howells et al., 2012). ...
... Companies mainly tend to involve partners that fall outside of their specialization, while developing their core products internally (Ciravegna and Maielli, 2011;Laursen and Salter, 2006). In this way, they access to a wide variety of technological capabilities not available in-house (Andries and Thorwarth, 2014;Chesbrough, 2003;Teirlinck and Spithoven, 2013) and focus their R&D efforts on a narrow range of technologies (Gadde, 2014). On one hand, specialization is one of the main effects of a company employing R&D outsourcing (Narula, 2001). ...
Purpose
To provide a patent-based framework for investigating the effect of previous and current open innovation adoption on firms’ knowledge management strategies and type of innovation output.
Design/methodology/approach
Patent data are employed for gauging innovation practices, exploitation vs. exploration strategies, specialization vs. diversification choices and type of innovation. The study is performed on a sample of 1,280 patents granted to 66 top R&D spending bio-pharmaceutical companies. The year of analysis is 2010.
Findings
The previous recourse to specific innovation practices influences the current practice selection. R&D collaboration, outsourcing and M&As are employed to pursue exploration. Past purchase of patents increases the likelihood to achieve architectural and radical innovation in current activities.
Research limitations/implications
The work recommends the use of patent data to gauge many key elements for knowledge and innovation management. Results exhort scholars to investigate innovation practices at the knowledge domain level in order to detect specific behaviors.
Practical implications
The study provides a methodology for supporting decision-makers in assessing firms’ open innovation adoption, also performing the benchmark with competitors and R&D partners. Given the high computational effort required for applying the methodology, we are planning to give access to the software specifically developed for this study.
Originality/value
The work contributes to the current debate considering the effect of a combination of innovation practices on knowledge management strategies and type of innovation output, with a particular focus on open innovation activities. Moreover, the separation between the impact of previous and current innovation practices provides useful insights.
... Our equation (2) equals the score equation in that paper, once the selection probability G n (T j ) is replaced by its analogue under length-bias, namely T j ; see [28] for more on the length-bias model. Preliminary simulations with time-dependent covariates suggest the consistency of the solution in (2) in the doubly truncated setting too; see Section 2.3 for an illustrative example. ...
... Indeed, basic research in entrepreneurship is not frequently found, being rather present in research institutes and universities [8,31]. Moreover, firms internally performing basic research are typically of larger size compared to those in our sample [2,24]. ...
The creation of new firms is an important incentive for the economic growth of a country, since it generates employment, it encourages the competition, and promotes innovation. In this work, we investigate the survival of Spanish firms which were created since 2001 and closed down between 2004 and 2012. The information was gathered from Technological Innovation Panel (PITEC), a survey with a focus the technological innovation in Spanish firms. In particular, a Cox regression model with time-dependent covariates was used in order to identify and quantify the determinants of the risk of exit for the firm. The selection bias due to the interval sampling for the firms was corrected by using methods for doubly truncated lifetimes. Interestingly, it is seen how the correction for the selection bias changes both the size and the statistical significance of the effects provided by standard Cox regression.
... More in detail, the existence of a complementary or substitution effect between internal and external sources of knowledge is still an open issue. Studies based on transaction cost theory suppose that the internal and external inputs of knowledge are substitutes, and several works find evidence of the absence of complementarities (Love and Roper 2001;Laursen and Salter 2006;Vega-Jurado et al. 2008Andries and Thorwarth 2014;Higón 2016). The resource-based approach, instead, supposing that firms use external knowledge as an opportunity to learn rather than as a way to minimise costs, states that internal R&D and external knowledge acquisition are complementary inputs (Cohen and Levinthal 1990;Veugelers 1997;Gallouj 2000;Sundbo, 2000;Becker and Dietz 2004;Cassiman and Veugelers 2006). ...
... The choice to collaborate with private and public organisations, instead, is motivated by strategic rather than cost considerations (Gooroochurn and Hanley 2007;Narula 2001). For this reason, outsourcing has used mainly in non-core activities of low and mediumlow technological industries (Andries and Thorwarth 2014) or more in general, in industries more oriented to perform only incremental innovation (Stanko and Ollelors 2013). Several papers consider the role of outsourcing and R&D cooperation in a common framework (Dhont-Peltrault and Pfister 2011; Holl and Rama 2014; Tsai, Hsieh, and Hultink 2011), but they do not study the interrelation between these two strategies and the firm internal research inputs. ...
This work explores the relationship between R&D activities, as well as cooperation agreements, and the innovation capacity of service firms. Accounting for interdependencies among variable, we verify whether external research is complementary or substitute for the internal research activities and whether the combination of external and internal sources of knowledge has a stronger impact on the innovation capacity of the science-based service industries. We also evaluate the gains from performing both internal and external R&D in science-based firms involved in cooperation agreements for innovation. Finally, to our knowledge, this work represents the first attempt to investigate the impact of several sources of knowledge and their combination on firms’ innovation intensity. According to our findings, the most important source of innovation is the internal one. Collaborations with public or private institutions seem to be more beneficial for firms involved in more intense innovation activities.
... Among these strategies, outsourcing and cooperation play a key role in inbound flows of knowledge or in-bound OI. However, most of the research has examined the 'make' or 'buy' trade-off and the complementarity or substitutability between internal and external R&D (Andries and Thorwarth 2014;Audretsch, Menkveld and Thurik 1996;Berchicci 2013;Lokshin, Belderbos and Carree 2008;Hagedoorn and Wang 2012;Love andRoper 2001, 2009;McIvor 2009;Piga andVivarelli 2003, 2004;Veugelers and Cassiman 1999). While valuable, this strand of research does not answer several questions related to the best selection models to define the inbound OI strategy for external knowledge. ...
... R&D Outsourcing is usually performed to reduce costs, get scale economies and reinforce specialization, while collaboration is motivated by strategic rather costs considerations (Gooroochurn and Hanley 2007;Narula 2001). Hence, outsourcing, compared to collaboration, is less common in basic research (Andries and Thorwarth 2014), frequently used in non-core activities where knowledge is explicit and less complex (Spithoven and Teirlinck 2015;Weigelt 2009), and for more incremental innovations (Stanko and Olleros 2013). ...
This study examines the relationship between breadths of two different modes of external knowledge: R&D outsourcing and cooperation. Building upon transaction costs literature and literature on research partner breadth and R&D outsourcing, we hypothesise an U-inverted relationship between outsourcing breadth and innovation performance and a complementary relationship between R&D outsourcing and R&D cooperation. The model is tested on a large sample based on CIS survey for Spain. The empirical analysis confirms the U-inverted relationship between outsourcing breadth and innovation and also reveals an interesting result: the complementary effect of R&D cooperation varies with the level of R&D outsourcing breadth and it is not confirmed for low and medium levels of R&D outsourcing breadth. The results have important implications for theory on the selection of different modes of inbound open innovation and for managers and their cooperation and outsourcing strategies.
... Studies have shown that a firm's technological competencies that emanate from in-house R&D are an integral determinant of product innovation (Vega-Jurado et al., 2008). Andries and Thorwarth (2014) ran a study which revealed that in-house basic research is more productive for medium and large firms than outsourced basic research. Hence, firms can largely survive in the innovative sphere without in-house innovation activities only if they possess strong suppliers and consultancy connections that will provide them with a constant stream of knowledge and basic research that will enable them to develop and effectively use new technologies. ...
Recently, businesses have increasingly adopted open innovation, yet many still opt for internal innovation due to trust, security, and cost concerns. Notwithstanding, there has been little research into these strategic choices' immediate and long-term effects. This study addresses this gap by analysing data from the European Innovation Scoreboard between 2011 and 2019. We investigate whether a firm's decision to pursue internal or open innovation significantly impacts its technological and non-technological innovation outcomes over varying timeframes. Additionally, we examine the contingent influence of a research system on firms' decisions regarding innovation collaboration. Our findings reveal that internal and open innovation strategies have distinct effects on small and medium-sized enterprises (SMEs) across different periods, particularly with a two-year time lag. Further, a robust research system can impede cooperative efforts to achieve technological and non-technological innovation objectives. The study concludes with practical policy recommendations, empowering businesses with clear guidance for navigating innovation strategies in current business environments.
... Studies have shown that a firm's technological competencies that emanate from in-house R&D are an integral determinant of product innovation (Vega-Jurado et al., 2008). Andries and Thorwarth (2014) ran a study which revealed that in-house basic research is more productive for medium and large firms than outsourced basic research. Hence, firms can largely survive in the innovative sphere without in-house innovation activities only if they possess strong suppliers and consultancy connections that will provide them with a constant stream of knowledge and basic research that will enable them to develop and effectively use new technologies. ...
Recently, businesses have increasingly adopted open innovation, yet many still opt for internal innovation due to trust, security, and cost concerns. Notwithstanding, there has been little research into these strategic choices' immediate and long-term effects. This study addresses this gap by analysing data from the European Innovation Scoreboard between 2011 and 2019. We investigate whether a firm's decision to pursue internal or open innovation significantly impacts its technological and non-technological innovation outcomes over varying timeframes. Additionally, we examine the contingent influence of a research system on firms' decisions regarding innovation collaboration. Our findings reveal that internal and open innovation strategies have distinct effects on small and medium-sized enterprises (SMEs) across different periods, particularly with a two-year time lag. Further, a robust research system can impede cooperative efforts to achieve technological and non-technological innovation objectives. The study concludes with practical policy recommendations, empowering businesses with clear guidance for navigating innovation strategies in current business environments.
... Studies have demonstrated that a firm's technological competences stem from in-house R&D, which plays a crucial role in product innovation [27]. Furthermore, it has been found that medium and large firms derive greater productivity from in-house basic research compared to outsourced research [2]. Therefore, to a large extent, firms can thrive in the realm of innovation even without conducting in-house innovation activities, as long as they have strong connections with suppliers and consultants who can provide them with a continuous stream of knowledge and basic research, enabling them to develop and effectively utilize new technologies. ...
Technological and non-technological innovation efforts hinge on internal orientations for multiple reasons- trust security and affordability. However, studies oriented to the immediate and future returns on decisions to innovate openly and internally have been largely unavailable. This paper addresses this gap using panel data from European Innovation Scoreboard (2011-2019). We verified whether the decisions of firms to adopt internal innovation or innovate openly affect technological and/or non-technological innovation output at different time periods. Our results show that internal and open innovation efforts reveal varying influences for different periods on SMEs whilst the availability of research systems adversely affect efforts of cooperation towards innovation. The novelty of this research is that it offers insights into the immediate and short-term impact of firms’ mutually exclusive decisions to innovate openly or collaborative and how these decisions are moderated by the existing research system.
... For example, large enterprises have more talent and resources to innovate than small enterprises. For large and medium-sized enterprises, internal basic research is more effective than outsourced basic research (Andries and Thorwarth, 2014). Moreover, enterprises in different life cycles will adopt diverse competitive strategies based on their market share and industry development trend (Nelson, 1959;Mom et al., 2007). ...
... However, the cooperation on patents is implemented in the firm even without the involvement of universities or R&D organizations (in-house or based on external cooperation with other firms). There are many studies that highlight the positive effects on the firms´productivityfirms´productivity (for example: Andries, Thorwarth, 2014). Some other studies proved that the location influence the innovation ability. ...
Innovation and human capital play a crucial role in the economic development. Universities are one the main institutions influencing level of these factors, so states or other public institutions has spent substantial funds on their functioning. Due to political need to spend funds efficiently and effectively, for the last years previous, mainly trust based, funding regimes has been partially replaced by new ways of financing - performance based financing. These new forms have their own advantages and weaknesses, but they are used short time to be able to evaluate their longer term impacts. However, we could see how these forms change the distribution of funding. In this article, we empirically looked at different types of universities funding and compare how this funding affects different universities in case of Slovakia. We show that the different schemes lead to quite different allocations. More than type of funding is important how the criteria for funding are set up and how different sources are complementary to the needs of universities.
... Research from the perspective of innovation efficiency is relatively less, Ronde and Huccler (2005) [14] found that the relationship between firm size and innovation efficiency was not determined, it depended on the country's science and technology policy. Petra and Susanne (2013) [15] discussed from the point of view that if innovation activities were outsourced. Results showed that if company outsourced innovation activities, small firm size might have advantage. ...
The paper uses panel data of 30 provinces in China
from 1998 to 2012 to calculate their innovation efficiency by DEA model. Meanwhile we use Tobit model
to discuss the effect of firm size on regional innovation efficiency. In order to solve
endogeneity problem, we choose an instrumental variable to replace firm size. Although from Figure 2, firm size and innovation efficiency show an inverted U-shaped relationship, at this stage enterprises in China are usually small, which leads most of them stay
at the left side of inverted U-shaped curve. Our main conclusion is that at this stage in China, firm size and innovation
efficiency have a linear relationship. Other variables such as dependence on trade, level
of urbanization and education also have positive effect on innovation
efficiency.
Intelligent manufacturing and green development are pivotal issues in China's pursuit of high-quality economic growth. As the core carrier of artificial intelligence-driven production transformations, industrial robots' role in synergizing enterprise pollution control and carbon reduction has rarely been discussed in the literature. Leveraging a unique micro dataset with robot adoption, energy use, emissions, and economic factors, this study investigates the impact and mechanisms of robot adoption on enterprise pollution abatement and carbon reduction. The results unveil simultaneous SO2 and carbon emission intensity reductions after robot adoption. Further analysis attributes such synergistic effects primarily to front-end cleaner production rather than back-end pollution treatment. Promoting lean production, cleaner energy consumption, and technological innovation emerge as critical channels for robot adoption to exert synergistic benefits in pollution abatement and carbon reduction. Additionally, this collaborative abatement effect concentrates in large-scale enterprises, technology-intensive industry enterprises, and non-resource-based region enterprises. By elucidating robotization's micro-level workings, these findings provide valuable insights into green intelligent manufacturing and guide future integration of digital intelligence and green economy.
Research and Development (R&D) outsourcing has rapidly grown in recent decades but little attention has been paid to the persistence with which these contracts are carried out. In this way, this study contributes to the literature by providing new evidence on the extent of true state dependence in explaining the persistence of outsourcing R&D to a type of contractor. Further, we explicitly distinguish between offshore and onshore outsourcing strategies and study their own- and cross-state dependence. In doing so, we estimate a set of dynamic models of strategy adoption using a panel of Spanish manufacturing firms from 2005 to 2014. The data allow for the distinction between five types of contractors and their domestic or foreign origin in each of them. Our results support the idea that R&D outsourcing with a type of contractor exhibits true-state dependence although moderate, with onshore R&D outsourcing being more state-dependent than its offshore counterpart. Results also indicate the existence of cross-state dependence in both directions.
The innovation literature on operations-based organisations describes the positive effect of Open Innovation (OI) on productivity. However, a systemic overview of how OI directly and indirectly impacts productivity is missing, particularly for project-based organisations. Hence, the article aims to fill this gap by providing a systemic representation of how OI enhances project-based organisations' productivity. The article focuses on the construction ecosystem since construction is an exemplary project-based industry and is known for its widespread and longstanding poor productivity. In particular, we investigated how OI is adopted and how OI can enhance productivity in the construction ecosystem. We conducted twenty semi-structured interviews with experts involved in OI construction projects in the UK. This paper makes three academic contributions. First, it provides an account of the most relevant causes for poor productivity in construction. Second, it consolidates primary and secondary data in a novel cognitive map providing a systemic representation of how OI enhances productivity in construction. The validity of the map goes beyond the boundaries of the construction ecosystem, being supported by several cross-sectorial references. Third, the paper offers six strategies that leverage OI to address the specific causes of low productivity in construction.
Given the managerial/financial commitments needed for supplier development programs, buying firms need to be selective of the suppliers they engage for development. This paper examines the moderating role of five supply-side factors (i.e. supplier size, supply share, product complexity, buyer-supplier integration, and the supplier's management systems) in the relationship between supplier development and supplier performance, through a structural model, which is developed theoretically, and tested empirically using survey data of 142 firms.
The results indicate that when supplier development is in the form of buyer direct involvement, its impact on supplier performance is significantly moderated by supplier size, product complexity, buyer-supplier integration, and the supplier's management systems. Meanwhile, the impact of supplier development, in the form of assessment/certification, is moderated by buyer-supplier integration. The outcomes of this paper fill the gaps in the existing knowledge of supplier development, and show the sensitivity of supplier development programs to some newly introduced supply-side factors.
Choosing the right supply chain outsourcing strategy is crucial to the success of a business. This chapter presents two cases from the newly emerging online fashion-renting business: Rent-The-Runway (RTR) in the United States and Meilizu in China. At the early stage of their development, both companies embrace similar supply chain outsourcing strategies, and both alter their strategies to match their corporate objectives with the market environment. RTR brings its outsourced laundry and delivery services in-house to fit its expanding scale. Meilizu outsources part of its product supply to VIP customers to fit its customer culture. The two cases show that a tailor-made supply chain strategy is essential to each company, even though they are in the same industry.
The 2010 Journal of Information Technology (JIT) article, ‘A Review of the IT Outsourcing Empirical Literature and Future Research Directions’, analyzed 741 findings on the determinants of information technology outsourcing (ITO) decisions and outcomes from 164 empirical articles published between 1992 and 2010. Using the same coding method, the 2011 JIT article, ‘Business Process Outsourcing Studies: A Critical Review and Research Directions’, analyzed 615 findings on the determinants of business process outsourcing (BPO) decisions and outcomes from 67 empirical articles published between 1996 and 2011. Taken together, these two reviews found that the preponderance of evidence from both ITO and BPO research streams produced largely consistent results pertaining to the categories of independent variables that affected outsourcing decisions and outcomes. To investigate the most current research findings on business services, which comprise ITO and BPO, and to compare the results with the prior JIT reviews, we replicated the method used in the prior JIT reviews. In this update, we examined 174 newly published articles across 78 academic journals published between 2010 and 2014. We found that researchers have significantly expanded the variables of interest in the last 4 years. In all, researchers investigated 69 new variables. Compared with earlier research, this review of recent articles found a deeper exploration of the direct effects of transaction attributes, sourcing motivations, client and provider capabilities, and governance on sourcing decisions and outcomes. Researchers have also studied a broader variety of sourcing decisions, including shared services, captive centers, rural sourcing, and backsourcing. This update also found a more nuanced understanding of relational governance and its interaction with contractual governance. We assessed the research progress that has been made on 10 previously identified gaps in knowledge. We proposed a future research agenda that includes continued, incremental progress on ‘normal science’ research questions, as well as more ambitious research goals. We challenged researchers to investigate how sourcing clients, providers, and advisors can protect jobs, protect the environment, and ensure security in an increasingly automated world.
The 2010 Journal of Information Technology (JIT) article, ‘A Review of the IT Outsourcing Empirical Literature and Future Research Directions,’ analyzed 741 findings on the determinants of Information Technology Outsourcing (ITO) decisions and outcomes from 164 empirical articles published between 1992 and 2010. Using the same coding method, the 2011 JIT article, ‘Business Process Outsourcing Studies: A Critical Review and Research Directions,’ analyzed 615 findings on the determinants of Business Process Outsourcing (BPO) decisions and outcomes from 67 empirical articles published between 1996 and 2011. Taken together, these two reviews found that the preponderance of evidence from both ITO and BPO research streams produced largely consistent results pertaining to the categories of independent variables that affected outsourcing decisions and outcomes. To investigate the most current research findings on business services, which comprise ITO and BPO, and to compare the results with the prior JIT reviews, we replicated the method used in the prior JIT reviews. In this update, we examined 174 newly published articles across 78 academic journals published between 2010 and 2014. We found that researchers have significantly expanded the variables of interest in the last 4 years. In all, researchers investigated 69 new variables. Compared with earlier research, this review of recent articles found a deeper exploration of the direct effects of transaction attributes, sourcing motivations, client and provider capabilities, and governance on sourcing decisions and outcomes. Researchers have also studied a broader variety of sourcing decisions, including shared services, captive centers, rural sourcing and backsourcing. This update also found a more nuanced understanding of relational governance and its interaction with contractual governance. We assessed the research progress that has been made on ten previously identified gaps in knowledge. We proposed a future research agenda that includes continued, incremental progress on ‘normal science’ research questions, as well as more ambitious research goals. We challenged researchers to investigate how sourcing clients, providers, and advisors can protect jobs, protect the environment, and ensure security in an increasingly automated world.
This paper explores to what extent conducting internal basic research, as opposed to external basic research (i.e. outsourcing and collaboration with universities) encourages firms to bring new products into the market ahead of competitors, and contributes to innovation performance. The analysis is based on a sample of Spanish manufacturing firms over the period 2006–2012. Our findings suggest that conducting in-house basic research affects firm's propensity to introduce product novelties. Furthermore, performing this activity continuously affects the probability of being product-pioneer in low and medium–low tech sectors. Collaboration with universities also helps in introducing new products ahead of competitors, but contracting scientific research from universities does not lead to a pioneer strategy. Results also reveal the absence of complementarities.
This paper evaluates some of the technological and economic factors that underlie the choice between in-house R&D, R&D alliances and outsourcing. We recount the reasons for the growth in non-internal activities, and explain why these are not as prevalent for R&D as other value-adding activities, and highlight that outsourcing is most often undertaken where multiple, substitutable sources are available. We then develop two frameworks. First, a static framework is developed, which evaluates the choice of mode based on a firm's distribution of competencies, and their strategic importance. Second, a dynamic framework is developed that demonstrates how the static framework differs depending on whether the firm is engaged in pre-paradigmatic, paradigmatic or post-paradigmatic sectors. We also consider the effect of new technologies being introduced to a firm's portfolio of competencies
Intangible relationship-specific investments can be double-edged swords, as they facilitate not only the governance of business relationships but also undesired knowledge transfers. Building on transaction costs theory and the relational view of alliances, we analyse the effectiveness of these investments in R&D outsourcing agreements from the viewpoint of the client. We argue that, when outsourcing to business firms, the safeguards adopted by the clients to prevent spillovers may reduce the effectiveness of the supplier's specialized investments. Using original survey data from 170 European and US technology-intensive firms, we find that the contribution of these investments to client performance decreases the more a client's core knowledge is required to perform the service, except when outsourcing to non-profits. This suggests that as the appropriability hazards associated with outsourcing to business firms rise, the client is able to capture less value from the supplier's relationship-specific investments.
Investigates the decisions of large, established pharmaceutical companies to develop new biotechnology-based pharmaceutical products with in-house research and development (R&D) rather than by outsourcing. The following five hypotheses are presented: pharmaceutical companies (1) are more likely to internalize R&D in those biotechnology product areas in which R&D capabilities are concentrated in fewer R&D suppliers; (2) are more likely to internalize R&D in those biotechnology product markets in which greater competition from other established pharmaceutical companies exists; (3) that tended to use in-house R&D for their traditional pharmaceutical products will have a greater propensity to internalize R&D for biotechnology-based products; (4) are more likely to undertake a biotechnology R&D project in-house when they have accumulated more in-house R&D experience in the relevant area of biotechnology; and (5) with a higher percentage of their business in pharmaceuticals will be more likely to internalize biotechnology-pharmaceutical R&D projects. Data were gathered from the fifty largest pharmaceutical companies in the world on R&D project-level procurement decisions. Findings indicate that small-numbers-bargaining hazards in the R&D markets do motivate the internalization of R&D. However, it was found that rivalry among established pharmaceutical firms does not lead to internalization. Also supported is the notion that firm-level factors influence R&D procurement patterns, but a firm's history in regard to technological procurement was not a significant indicator of its behavior in new technology. Finally, size was not found to be a significant factor in procurement decisions. (SFL)
This paper aims at analyzing (a) the factors determining the firms’ propensity to outsource various processes (b) the impact of outsourcing on firms’ innovation performance as well as labour productivity. The integral investigation of the determining factors as well as the impact of outsourcing on innovation and productivity based on the same data in a comparative setting is the new element this study adds to existing empirical literature. Relocation to external providers is related to (parts of) the production process of final products and intermediate products as well as Research and Development (R&D) and Information and Communication Technology (ICT) services.
While a great deal of scholastic effort has gone into discovering the multifaceted relationships between applied research initiatives and subsequent performance, relatively little empirical research addresses the performance impact from firm investments in basic research initiatives. Even less addresses the interactive roles of both types of research. The authors conceptualize and empirically evaluate the interactive relationship between applied and basic research initiatives and firm performance. Applied and basic research projects are knowledge creation activities in a product development domain, and both initiatives enhance the stored knowledge of a firm. Stored knowledge is the fuel that drives the product development engine. Applied research initiatives assimilate and exploit stored knowledge to develop new products. Basic research initiatives contribute to and enhance the stock of knowledge from which the applied initiatives are drawn. This expanded base of stored knowledge has positive ramifications for subsequent applied research initiatives. Results indicate that firms that engage in moderate or higher levels of applied research will see enhanced performance returns from additional investments in basic research. Conversely, firms that engage in relatively lower levels of applied research see no performance enhancement at any level of investment in basic research. Firms that rely on a flow of product innovations to provide a continued income stream must certainly invest in applied research initiatives. However, additional investment in directed basic research initiatives will augment future applied projects and could become the source of sustainable competitive advantage.
The purpose of this article is to investigate how innovation networks can be used to deal with a changing technological environment. This study combines different concepts related to research and development (R&D) collaboration strategies of large firms and applies these concepts to R&D alliance projects undertaken by Nokia Corporation in the period 1985–2002. The research methodology is a combination of in-depth semistructured interviews and a large-scale quantitative analysis of alliance agreements. For the empirical analysis a distinction is made between exploration and exploitation in innovation networks in terms of three different measures. As a first measure, the difference between exploration and exploitation strategies by means of the observed capabilities of the partners of the contracting firms is investigated. The second measure is related to partner turnover. The present article argues that in exploration networks partner turnover will be higher than in exploitation networks. As a third measure, the type of alliance contract will be taken; exploration networks will make use of flexible legal organizational structures, whereas exploitation alliances are associated with legal structures that enable long-term collaboration. The case of Nokia has illustrated the importance of strategic technology networks for strategic repositioning under conditions of change. Nokia followed an exploitation strategy in the development of the first two generations of mobile telephony and an exploration strategy in the development of technologies for the third generation. Such interfirm networks seem to offer flexibility, speed, innovation, and the ability to adjust smoothly to changing market conditions and new strategic opportunities. These two different strategies have led to distinctly different international innovation networks, have helped the company in becoming a world leader in the mobile phone industry, and have enabled it to sustain that position in a radically changed technological environment. This study also illustrates that Nokia effectively uses an open innovation strategy in the development of new products and services and in setting technology standards for current and future use of mobile communication applications. This article presents one of the first longitudinal studies, which describes the use of innovation networks as a means to adapt swiftly to changing market conditions and strategic change. This study contributes to the emerging, but still inconsistent, literature on explorative and exploitative learning by means of strategic technology networks.
From the perspective of the vendors in emerging countries (VECs), this article investigates how the vendor firms in China respond to cross-border outsourcing trends differently by examining the different effects of entrepreneurial orientation (EO) and market orientation (MO), as well as their interaction, on local vendors' acquisition of knowledge from foreign outsourcers in cross-border outsourcing. We find that the knowledge acquisition of the vendors positively affects firm performance. Thus, the vendors need to correctly choose their strategic orientation to improve the knowledge acquisitions. Our results show the EO of the vendors has a positive effect on the knowledge acquisition, but the relationship between MO and the knowledge acquisition is an inverted U-shape. Further, the interactive effect between EO and MO on the knowledge acquisition is positive. All these findings extend the literature in organizational learning and cross-border outsourcing, and suggest that VECs should not only correctly choose their strategic orientation, but also pay more attention to the orientation interaction in acquiring knowledge from their partners through cross-border outsourcing so that they can more efficiently improve their performance. Copyright (c) 2010 The Authors. Journal of Management Studies (c) 2010 Blackwell Publishing Ltd and Society for the Advancement of Management Studies.
This article aims to assess whether firms' strategies of R&D outsourcing determine changes in their internal R&D employment intensity. Four strategic decisions are investigated: to start, increase, decrease or stop outsourcing. It is found that internal R&D employment intensity decreases when firms decide to start, to increase, or to stop R&D outsourcing. However, this finding hides important differences according to the type and the location of the contractor. In general, firms prefer a mix of different types of contractors at different locations. Started outsourcing of R&D to research centers within the nation and increased R&D outsourcing to research centers within the region appear to decrease the internal R&D employment intensity. Decreasing outsourcing to national universities in another region also has a negative impact on internal R&D employment intensity. A corporate decision to stop R&D outsourcing to other firms within the nation but outside the region has a positive impact on the internal R&D employment intensity. The latter is the only effect that is not only statistically significant but is also substantial in magnitude. Copyright 2010 The Author 2010. Published by Oxford University Press on behalf of Associazione ICC. All rights reserved., Oxford University Press.
This article presents empirical evidence on the effects of external knowledge-sourcing strategies on the development of both
product and process innovations, and assesses the degree to which such effects are influenced by the firm's internal technological
capacities. In our analysis, we consider two strategies for acquiring external knowledge (buying and cooperating) and two
types of external sources (industrial agents and scientific agents). The analysis is based on a sample of 1329 manufacturing
firms active in innovation activities taken from the Spanish Survey of Technological Innovation 2004. We find that the effects
of the knowledge-sourcing strategies differ significantly across innovation types (product or process innovation). In addition,
our results indicate that although internal R&D activities are associated with a greater use of external scientific knowledge
sources (through cooperation), they do not seem to promote their exploitation for innovation development, that is, to say,
they do not have synergistic effects.
The paper explores the productivity effects of investment in external (contract) vs. internal (in-house) R&D in a sample of West-German Manufacturing Industries. The results provide strong evidence of a positive relationship between productivity and the share of external R&D in total R&D. This result is robust to alternative econometric specifications. Thus, findings suggest that the decision between internal and external R&D does matter. Moreover, results imply a nonlinear relationship between productivity and the share of external R&D for higher-technology industries, hinting at decreasing productivity effects of an increasing share of external in total R&D.
We examine the patenting behavior of firms in an industry characterized by rapid technological change and cumulative innovation. Recent survey evidence suggests that semiconductor firms do not rely heavily on patents to appropriate returns to R&D. Yet the propensity of semiconductor firms to patent has risen dramatically since the mid-1980s. We explore this apparent paradox by conducting interviews with industry representatives and analyzing the patenting behavior of 95 US semiconductor firms during 1979-95. The results suggest that the 1980s strengthening of US patent rights spawned "patent portfolio races" among capital-intensive firms, but also facilitated entry by specialized design firms.
We explore the use of patent citations to measure the "basicness" and appropriability of inventions. We propose that the basicness of research underlying an invention can be characterized by the nature of the previous patents cited by an invention; that the basicness of research outcomes relates to the subsequent patents that cite an invention; and that the fraction of citing patents that are assigned to the same organization as the original invention is a measure of appropriabiity. We test the validity of these presumptions by comparing the value of our measures for university and corporate patents, and find that many of the measures do conform to our a priori belief that university research and research outcomes are more basic and harder to appropriate than those of corporations. We also find some evidence that basicness of outcomes is correlated with basicness of research, and that appropriability is lower for basic outcomes.
This paper explores 40 years of data on R&D partnerships. These R&D partnerships are examples of inter-firm collaboration or strategic partnering, a topic that has recently attracted attention in both the academic literature and the popular press. The paper presents an analysis of some basic historical trends and sectoral patterns in R&D partnering since 1960. It also provides an overview of some major international (sectoral) patterns in the forming of R&D partnerships within the Triad (North America, Europe and Asia).
The question to be addressed is: Why do private firms perform basic research with their own money? Interest in this question derives from both analytical and utilitarian considerations. There is empirical evidence in the United States, which provides the main context for this paper. Supporting the view that basic research makes a significant contribution to the productivity growth of the economy [4,7]. It is widely held that social returns from basic research are significant and higher than private returns and it is for this reason that most such activities continue to be financed by the taxpayer. This also implies that measures aimed at increasing basic research by the private sector will be welfare improving. In the United States, the federal government in the years since the Second World War has provided the vast majority of all funds devoted to basic research. Although the federal share has been declining in recent years, and although that share is at its lowest level in about 20 years, it still constitutes about two-thirds of the total [10]…
The past two decades have seen a gradual but noticeable change in the economic organization of innovative activity. Most firms used to integrate research and development with activities such as production, marketing, and distribution. Today firms are forming joint ventures, research and development alliances, licensing deals, and a variety of other outsourcing arrangements with universities, technology-based start-ups, and other established firms. In many industries, a division of innovative labor is emerging, with a substantial increase in the licensing of existing and prospective technologies. In short, technology and knowledge are becoming definable and tradable commodities.
Although researchers have made significant advances in understanding the determinants and consequences of innovation, until recently they have paid little attention to how innovation functions as an economic process. This book examines the nature and workings of markets for intermediate technological inputs. It looks first at how industry structure, the nature of knowledge, and intellectual property rights facilitate the development of technology markets. It then examines the impacts of these markets on firm boundaries, the division of labor within the economy, industry structure, and economic growth. Finally, it examines the implications of this framework for public policy and corporate strategy. Combining theoretical perspectives from economics and management with empirical analysis, the book also draws on historical evidence and case studies to flesh out its research results.
R&D encompasses plenty of activities which are usually summarized under the terms of basic research, applied research and development. Although basic research is often associated with low appropriability it provides the fundamental basis for subsequent applied research and development. Especially in the high-tech sector basic research capabilities are an essential component for a firm's success. We use firm-level panel data stemming from Belgian R&D surveys and apply a production function approach which shows that basic research exhibits a premium on a firm's output when compared to applied research and development. When we split the sample into high-tech and low-tech companies, we find a large premium of basic research for firms in high-tech industries, but no premium in low-tech sectors.
Why do firms form strategic alliances? The traditional theoretical answer has been transaction cost explanations. Yet, these explanations which center on transaction characteristics, static efficiency, and routine situations do not capture the strategic and social factors which propel many firms into alliance formation. In this study, however, we combine these alternative social and strategic explanations for alliance formation. Consistent with these explanations, we find that alliances form when firms are in vulnerable strategic positions either because they are competing in emergent or highly competitive industries or because they are attempting pioneering technical strategies. We also find that alliances form when firms are in strong social positions such that they are led by large, experienced, and well-connected top management teams. The underlying logic of alliance formation is, thus, strategic needs and social opportunities.
We develop these findings by extending the resource-based view of the firm to alliance formation and then examining the resulting hypotheses using product development alliances. The study is longitudinal and focuses on entrepreneurial semiconductor firms. Overall, strategic and social explanations of organizational phenomena as well as industry, firm, and top management team factors emerge as central in the paper. This suggests that these factors are relevant for predicting alliance formation, especially in high-velocity industries such as semiconductors. We conclude that failure to include social and strategic explanations creates an impoverished view of alliance formation.
Based on different contractual forms and their associated degrees of organizational integration, a typology of strategies for technology acquisition (sourcing) is constructed. Based on a sample of corporations in Europe, Japan and US, it is shown that external acquisition of technology through various strategies increases in importance in general. Product case studies further show that external acquisition of technology is associated with technology diversification into increasingly costly new technologies. As a result corporations become multi-technological (‘multech’). At the same time quasi-integrated corporate systems of innovation arise in which in-house R&D is managed together with a mix of strategies for external acquisition of technology, using various contractual forms. This presents new challenges to traditional in-house R&D management. Technology diversification is moreover shown to be associated with growth of sales as well as with growth of R&D expenditures. A high level of external technology acquisition presents risks that ought to lead companies to consider technology based product diversification.
Researchers interested in estimating productivity can choose from an array of method-ologies, each with its strengths and weaknesses. This study compares productivity estimates and evaluates the extent to which the conclusions from three important pro-ductivity debates in the economic development literature are sensitive to the choice of estimation method. Five widely used techniques are considered, two nonparametric and three parametric: index numbers, data envelopment analysis, instrumental variables estimation, stochastic frontiers, and semiparametric estimation. Using data on manu-facturing firms in two developing countries, Colombia and Zimbabwe, I find that the different methods produce surprisingly similar productivity estimates when the mea-sures are compared directly, even though the estimated input elasticities vary widely. Furthermore, the methods reach the same conclusions for two of the debates, support-ing endogenous growth effects and showing that firm level productivity changes are an important contributor to aggregate productivity growth. In terms of the third de-bate, the parametric productivity measures provide evidence of learning-by-exporting, while the nonparametric measures that allow for a different production technology for exporters and nonexporters do not.
We review the econometric literature on measuring the returns to R&D. The theoretical frameworks that have been used are outlined, followed by an extensive discussion of measurement and econometric issues that arise when estimating the models. We then provide a series of tables summarizing the major results that have been obtained and conclude with a presentation of R&D spillover returns measurement. In general, the private returns to R&D are strongly positive and somewhat higher than those for ordinary capital, while the social returns are even higher, although variable and imprecisely measured in many cases.
Firms increasingly adopt an open innovation model in which they rely on technology alliances to complement and supplement their internal innovation efforts. Although previous studies provide in-depth insight into the impact of technology alliances on the innovation performance, they remain relatively silent on how technology alliances eventually influence the financial performance of the firm. The purpose of this paper is to develop and test a conceptual framework that disentangles both the value-enhancing and cost-increasing effects of technology alliances on financial performance. The model was tested with a sample of 305 Belgian manufacturing firms. Combining data from the Belgian Community Information Survey (CIS IV) database and the BELFIRST database, structural equation analyses were conducted on the connection among technology alliance portfolio diversity, product innovation performance, and financial performance. This study's data provide empirical confirmation for the assumption of existing research that technology alliance portfolio diversity has an indirect positive impact on financial performance via increased product innovation performance. However, a direct cost-increasing effect of technology alliance portfolio diversity on financial performance is observed. Moreover, the structural equation analyses suggest that, in the short-term, the direct cost-increasing effect of technology alliance portfolio diversity exceeds the indirect value-generating effect of technology alliances. These findings contribute to the current research on open innovation in two important ways. First, these results support the open innovation model by illuminating the interconnectedness between internal and external innovation strategies. In particular, technology alliance portfolio diversity has a positive impact on internal innovation efforts, which increases product innovation performance. Second, the findings complement the focus of existing open innovation research on the value-generating properties of technology alliances, directing attention to the cost-increasing effects of such collaborative strategies. On a managerial level, these findings suggest that, when making technology alliance decisions, managers not only should consider the potential benefits of such collaborative strategies but also should take into account the additional costs of intensifying the technology alliance portfolio.
The outsourcing of research and development (R&D) activities has frequently been characterized as an important instrument to acquire external technological knowledge that is subsequently integrated into a firm's own knowledge base. However, in this paper we argue that these 'gains' from R&D outsourcing need to be balanced against the 'pains' that stem from a dilution of firm-specific resources, the deterioration of integrative capabilities and the high demands on management attention. Based on a panel dataset of innovating firms in Germany, we find evidence for an inverse U-shaped relationship between R&D outsourcing and innovation performance. This relationship is positively moderated by the extent to which firms engage in internal R&D and by the breadth of formal R&D collaborations: both serve as an instrument to increase the effectiveness of R&D outsourcing. Copyright (c) 2010 ZEW Centre for European Economic Research. Journal of Management Studies (c) 2010 Blackwell Publishing Ltd and Society for the Advancement of Management Studies.
Outsourcing knowledge and innovation activities offer cost savings and superior performance, but can also put a firm's unique resources and capabilities at risk. Characterizations of outsourcing as a make-or-buy decision do not fit well with decisions on knowledge process outsourcing (KPO). KPO is a make-or-ally decision, as firms seek a governance structure that will both protect and leverage their strategic knowledge assets, with the final decision often coming down to a choice between different alliance forms. Our new conceptualization provides an integrated perspective on resource integration and transaction specificity in the knowledge governance decision. The model illustrates the dynamics and learning involved in knowledge outsourcing by identifying two distinct paths to KPO alliances. Copyright (c) 2010 The Authors. Journal of Management Studies (c) 2010 Blackwell Publishing Ltd and Society for the Advancement of Management Studies.
Economic analysis has helped us understand the strong economic dimension in the explosive growth of science, and (more recently) the reasons for continuing public subsidies. However, the growing domination of the “market failure” approach has led to the analytical neglect of two major questions for policy-makers. How does science contribute to technology? Are the technological benefits from science increasingly becoming international?On the former, too much attention has been devoted to the relatively narrow range of scientific fields producing knowledge with direct technological applications, and too little to the much broader range of fields, the skills of which contribute to most technologies. On the latter, national systems of science and of technology remain closely coupled in most major countries, in spite of the technological activities of large multinational firms.Empirical research is needed on concentration, scale and efficiency in the performance of basic research, where techniques and insights from the applied economics of industrial R&D are of considerable relevance. There is no convincing evidence so far of unexploited economies of scale in basic research.This evidence shows that many policies for greater “selectivity and concentration” in basic research have been misconceived. Economists and other social scientists could help by formulating more persuasive justifications for public subsidy for basic research, and by making more realistic assumptions about the nature of science and technology.
Using a newly available dataset on the R&D investment of individual French manufacturing firms for the 1980s, we replicate and update a series of studies on French R&D and productivity at the firm level from the 1970s, and evaluate the robustness of methods currently used to measure the private returns to R&D. Our main findings are: Having a longer history of R&D expenditures helps improve the quality of the R&D elasticity estimates, but the choice of depreciation rate for R&D capital makes little difference. The correction for double-counting of R&D expenditures in capital and labor is important and may be interpreted under certain conditions as converting a measured ‘excess’ rate of return to a total rate of return to R&D. We show that the direct production function approach to measure returns to R&D capital is preferred on several grounds over the rate of return variation used in the past. Finally, as in the 1970s, the productivity of R&D capital for French manufacturing firms in the 1980s is positive; how strong and robust depends on whether we control for potential industry and firm effects.
In this paper we carefully link knowledge flows to and from a firm’s innovation process with this firm’s investment decisions. We present a model of a leading technological firm facing a competitive fringe. The leading firm considers three types of investments: investments in applied research, investments in basic research, and investments in intellectual property protection. By doing basic research, the leading firm can effectively access incoming knowledge flows. These incoming spillovers serve to increase the efficiency of own applied research. The leading firm can at the same time influence outgoing knowledge flows, improving appropriability of its innovations, by investing in protection. Our results indicate that the leading firm with a small budget for innovation will not invest in basic research. This occurs in the short run, when the budget for know-how creation is restricted, or in the long-run, when market opportunities are low, when legal protection is not very important, or, when the pool of accessible and relevant external know-how is limited. Once this firm starts accessing external know-how by spending on basic research, the ratio of basic to applied research is non-decreasing in the size of the pool of accessible external know-how, the size and opportunity of the market, and, the effectiveness of intellectual property rights protection. This indicates the existence of economies of scale in basic research due to external market related factors.
The performance implications of innovation in small and medium-sized enterprises (SMEs) have attracted considerable interest among academics and practitioners. However, empirical research on the innovation–performance relationship in SMEs shows controversial results. This meta-analysis synthesizes empirical findings in order to obtain evidence whether and especially under which circumstances smaller, resource-scarce firms benefit from innovation. We find that innovation–performance relationship is context dependent. Factors such as the age of the firm, the type of innovation, and the cultural context affect the impact of innovation on firm performance to a large extent.
During the past few years, bibliometric studies were conducted on research performance at three Flemish universities: The University of Ghent, the Catholic University of Leuven, and the University of Antwerp. Longitudinal analyses of research input, publication output, and impact covering a time span of 12 years were made of hundreds of research departments. This article outlines the general methodology used during these studies, and presents the main outcomes with respect to the faculties of medicine, science, and pharmaceutical science at the three universities involved. It focuses on the reactions of the researchers working in these faculties and of the university evaluation authorities on the studies. © 1998 John Wiley & Sons, Inc.
We add to the methods for conditioning out serially correlated unobserved shocks to the production technology. We build on
ideas first developed in Olley and Pakes (1996). They show how to use investment to control for correlation between input
levels and the unobserved firm-specific productivity process. We show that intermediate inputs (those inputs which are typically
subtracted out in a value-added production function) can also solve this simultaneity problem. We discuss some theoretical
benefits of extending the proxy choice set in this direction and our empirical results suggest these benefits can be important.
This paper presents specification tests that are applicable after estimating a dynamic model from panel data by the generalized
method of moments (GMM), and studies the practical performance of these procedures using both generated and real data. Our
GMM estimator optimally exploits all the linear moment restrictions that follow from the assumption of no serial correlation
in the errors, in an equation which contains individual effects, lagged dependent variables and no strictly exogenous variables.
We propose a test of serial correlation based on the GMM residuals and compare this with Sargan tests of over-identifying
restrictions and Hausman specification tests.
Drawing on knowledge-based, organizational learning, and social capital perspectives, we propose and test an integrated framework in which knowledge tacitness and trust act as mediating mechanisms in the relationship between partner characteristics and alliance outcomes. We distinguish between learning and innovation outcomes and suggest that while innovation may result from alliance learning, it can also be created by combining separate knowledge bases "without" learning from each other. We contend that tacitness and trust play differing roles in the pursuit of learning and innovation and test this proposition on a sample of 120 international strategic alliances. Copyright (c) Blackwell Publishing Ltd 2009.
This article focuses on the effects of double-counting and expensing on the measured returns to R&D. The contribution of research and development (R&D) to economic growth has been measured in two general ways. The first is to compute total factor productivity in a growth accounting framework and to attribute this "residual" growth to R&D. The prevailing view is that, in the presence of double-counting, the measured contribution of R&D represents the return above and beyond the normal remuneration to traditional capital. Author demonstrate that this excess returns interpretation (ERI) is essentially correct in the growth accounting framework and that the resulting bias in the measured contribution of R&D to growth is large. In postwar U.S. manufacturing the measured residual is biased downward by as much as 30%. The expensing bias is downward and reinforces the excess returns bias in this case, and the total bias is large. In both the growth accounting and econometric contexts, the magnitude of the biases may vary across samples and over time. There is simply no substitute for properly measured variables.
This article outlines the production function approach to the estimation of the returns to R&D and then proceeds to discuss in turn two very difficult problems: the measurement of output in R&D intensive industries and the definition and measurement of the stock R&D "capital." The latter concept leads to a discussion of modeling of the spillover effects of R&D and to suggestions for possible measurement of such effects via the concept of technological distance between firms and industries. Somewhat more familiar econometric problems (multicollinearity and simultaneity) are taken up in the next section and another section is devoted to estimation and inference problems arising more specifically in the R&D context. Several recent studies of returns to R&D are then surveyed, and the paper concludes with a plea for a lowering of expectations as to what the available data can tell us and with suggestions for ways of expanding the current data base in this field.
Researchers interested in estimating productivity can choose from an array of methodologies, each with its strengths and weaknesses. This study compares productivity estimates and evaluates the extent to which the conclusions of three important productivity debates in the economic development literature are sensitive to the choice of estimation method. Five widely used techniques are considered, two nonparametric and three parametric: index numbers, data envelopment analysis, instrumental variables estimation, stochastic frontiers, and semiparametric estimation. Using data on manufacturing firms in two developing countries, Colombia and Zimbabwe, we find that the different methods produce surprisingly similar productivity estimates when the measures are compared directly, even though the estimated input elasticities vary widely. Furthermore, the methods reach the same conclusions on two of the debates, supporting endogenous growth effects and showing that firm-level productivity changes are an important contributor to aggregate productivity growth. On the third debate, only with the parametric productivity measures is there evidence of learning by exporting.
The past two decades have seen a gradual but noticeable change in the economic organization of innovative activity. Most firms used to integrate research and development with activities such as production, marketing, and distribution. Today, firms are forming joint ventures, research and development alliances, licensing deals, and a variety of other outsourcing arrangements with universities, technology-based start-ups, and other established firms. In many industries, a division of innovative labor is emerging, with a substantial increase in the licensing of existing and prospective technologies. In short, technology and knowledge are becoming definable and tradable commodities. Although researchers have made significant advances in understanding the determinants and consequences of innovation, until recently they have paid little attention to how innovation functions as an economic process. This book examines the nature and workings of markets for intermediate technological inputs. It looks first at how industry structure, the nature of knowledge, and intellectual property rights facilitate the development of technology markets. It then examines the impacts of these markets on firm boundaries, the division of labor within the economy, industry structure, and economic growth. Finally, it examines the implications of this framework for public policy and corporate strategy. Combining theoretical perspectives from economics and management with empirical analysis, the book also draws on historical evidence and case studies to flesh out its research results.
The purpose of this paper is to identify those factors shaping the decision to engage in external R&D. We use the lens of institutional economics to link the decision to engage in external R&D to both firm - and industry - specific characteristics. In particular, we find that internal and external R&D tend to be complements in high-technology industries but substitutes in low-technology industries.
We examine the impact of internal and external R&D on labour productivity in a 6-year panel of Dutch manufacturing firms. We apply a dynamic panel data model that allows for decreasing or increasing returns to scale in internal and external R&D and for economies of scope. We find complementarity between internal and external R&D, with a positive impact of external R&D only evident in case of sufficient internal R&D. These findings confirm the role of internal R&D in enhancing absorptive capacity. The scope economies are accompanied by decreasing returns to scale at high levels of internal and external R&D. The analysis indicates that productivity grows by increasing the share of external R&D in total R&D. Copyright (c) Blackwell Publishing Ltd and the Department of Economics, University of Oxford, 2008.
Researchers interested in estimating productivity can choose from an array of methodologies, each with its strengths and weaknesses. We compare the robustness of five widely used techniques, two non-parametric and three parametric: in order, (a) index numbers, (b) data envelopment analysis (DEA), (c) stochastic frontiers, (d) instrumental variables (GMM) and (e) semiparametric estimation. Using simulated samples of firms, we analyze the sensitivity of alternative methods to the way randomness is introduced in the data generating process. Three experiments are considered, introducing randomness via factor price heterogeneity, measurement error and differences in production technology respectively. When measurement error is small, index numbers are excellent for estimating productivity growth and are among the best for estimating productivity levels. DEA excels when technology is heterogeneous and returns to scale are not constant. When measurement or optimization errors are nonnegligible, parametric approaches are preferred. Ranked by the persistence of the productivity differentials between firms (in decreasing order), one should prefer the stochastic frontiers, GMM, or semiparametric estimation methods. The practical relevance of each experiment for applied researchers is discussed explicitly. Copyright 2007 Blackwell Publishing Ltd..
A new data set for approximately 1,000 largest manufacturing firms inthe United States during 1957-77 is analyzed using a standard production function framework augmented by the addition of R&D "capital" and "mix" variables. The results indicate that R&D continued to contribute to productivity growth with no significant decline in its effectiveness in the 1970s as compared to the 1960s; that the contribution of basic research was significantly higher than its nominal ratio would imply; and that federally financed R&D expenditures had a positive but smaller effect on the productivity growth of these firms than the comparable contribution of privately financed R&D expenditures. Copyright 1986 by American Economic Association.
Technological change and deregulation have caused a major restructuring of the telecommunications equipment industry over the last two decades. Our empirical focus is on estimating the parameters of a production function for the equipment industry, and then using those estimates to analyze the evolution of plant-level productivity. The restructuring involved significant entry and exit and large changes in the sizes of incumbents. Firms' choices on whether to liquidate, and on input quantities should they continue, depended on their productivity. This generates a selection and a simultaneity problem when estimating production functions. Our theoretical focus is on providing an estimation algorithm which takes explicit account of these issues. We find that our algorithm produces markedly different and more plausible estimates of production function coefficients than do traditional estimation procedures. Using our estimates we find increases in the rate of aggregate productivity growth after deregulation. Since we have plant-level data we can introduce indices which delve deeper into how this productivity growth occurred. These indices indicate that productivity increases were primarily a result of a reallocation of capital towards more productive establishments.
The majority of empirical studies on the HRM-performance link report a positive story. The costs associated with the productivity rise due to high performance work practices (HPWP) have been largely neglected. The purpose of this study is to develop a conceptual framework that maps both the value-enhancing and cost-raising impact of HPWP. In addition, we want to pronounce upon their overall effect on financial performance. To test our model, we rely on a sample of small businesses. Understanding both performance and cost-related effects of the implementation of HPWP is particularly valuable for small businesses since they often lack financial resources to implement HPWP and benefit less from economies of scale compared to their larger counterparts. Study results indicate that although greater use of HPWP is associated with increased productivity, this effect is offset by increased labour costs. However, we find an overall positive effect of HPWP on firm profitability. Copyright Blackwell Publishing Ltd 2006.