Does R&D offshoring lead to SME growth? Different governance modes and the mediating role of innovation

Research summary : In this article, we address the role of R&D offshoring strategies in the sales growth of small‐ and medium‐sized enterprises (SMEs). We propose that different governance modes of R&D offshoring—insourcing versus outsourcing—may lead to growth, but that they differ in their effects. In turn, we argue that innovation mediates the relation between international R&D sourcing strategies and sales growth. Based on a large database of SME manufacturing enterprises in Spain, we find that offshore outsourcing positively affects sales growth both directly and indirectly, while offshore insourcing only affects sales growth indirectly via innovation results. The analysis reveals different contributions of each governance mode to sales growth and the mediating role of innovation in the relation between R&D offshoring and firm growth. Managerial summary : We analyze how different governance modes of international R&D sourcing—offshore insourcing and outsourcing—may contribute to growth in SMEs. Modes of offshore R&D outsourcing positively affect the growth of sales in two ways. One effect is direct, produced by improved efficiency, flexibility, enhanced resources, and access to new markets. And the other effect is indirect as offshore R&D outsourcing favors the achievement of innovations, and this in turn, positively affects firm growth. For their part, captive modes only exert an indirect effect. Offshore R&D insourcing contributes to the achievement of innovations, and thus, ultimately to firm growth in so far as these innovations enable SMEs to increase sales. Therefore, innovation results perform a mediating role in the relation between R&D offshoring and sales growth. Copyright © 2015 John Wiley & Sons, Ltd.     

Organizing for Inbound Open Innovation: How External Consultants and a Dedicated R&D Unit Influence Product Innovation Performance

Firms increasingly acquire technological knowledge from external sources to improve their innovation performance. This strategic approach is known as inbound open innovation. The existing empirical evidence regarding the impact of inbound open innovation on performance, however, is ambiguous. The equivocal results are due to moderating factors that influence a firm's ability to acquire technological knowledge from external sources and to transform it into innovation outputs. This paper focuses on a relevant yet overlooked category of moderating factors: organization of research and development (R&D). It explores two organizational mechanisms: one informal and external‐oriented (involvement of external consultants in R&D activities) and one formalized and internal‐oriented (existence of a dedicated R&D unit), in the acquisition of technological knowledge through R&D outsourcing, a particular contractual form for inbound open innovation. Drawing on a capabilities perspective and using a longitudinal dataset of 841 Spanish manufacturing firms observed over the period 1999–2007, this paper provides a fine‐grained analysis of the moderating effects of the two organizational mechanisms. The involvement of external consultants in R&D activities strengthens the impact of inbound open innovation on innovation performance by increasing marginal benefits of acquiring external technological knowledge through R&D outsourcing. Moreover, it reduces the level of inbound open innovation to which the highest innovation performance corresponds. Instead, the existence of a dedicated R&D unit makes the firm less sensitive to changes in the level of inbound open innovation, by reducing marginal benefits of acquiring external technological knowledge through R&D outsourcing, and increases the level of inbound open innovation to which the highest innovation performance corresponds. The results regarding the role of informal and formalized R&D organizational mechanisms contribute to research on open innovation and absorptive capacity, and also inform managers as to what organizational mechanism is recommended to acquire external technological knowledge, depending on the objectives that the firm pursues.     

Who explores further? Evidence on R&D outsourcing from the survey of research and development

Building off the resource‐based view and the knowledge‐based view, our study aims to examine determinants of firms’ R&D outsourcing, using annually‐conducted firm‐level survey data of Japanese R&D companies from 1984–2012. This survey allows us to measure strategic R&D outsourcing, isolated from those more for cost‐reducing, such as prototyping, testing and inspecting. The results corroborate the argument of complementarity in scale between internal R&D and R&D outsourcing. We also find that firms employing more doctorate holders and diversifying in knowledge spaces tend to make more use of R&D outsourcing. This study sheds light on firms’ absorptive capacity, associated both with higher‐order R&D human capital and diversified knowledge spaces, as determinants of R&D outsourcing.     

The national innovation system and foreign R&D: the case of Taiwan

R&D internationalization has increasingly involved countries outside the developed world. In addition, there has been a growing trend for countries in East Asia to seek to attract the R&D facilities of multinationals (MNCs). For such countries, they are faced with a fundamental question as to what kinds of impact MNCs' offshore R&D facilities will have on their own countries, especially in terms of technological innovation and industrial development. Set against the above backdrop, this paper sets out to examine a relatively new aspect of R&D internationalization related to global innovation networks and to open up the blackbox of the spillover effect regarding foreign R&D by examining the interplay of foreign R&D and Taiwan's national innovation system. The empirical part of the paper draws mainly upon intensive case studies of four high-profile foreign R&D facilities in the IT industry. The way foreign R&D interplays with Taiwan's NIS is examined in terms of the market & technology linkages.     

The impact of formal control and guanxi on task conflict in outsourcing relationships in China

The purpose of this study is to explore how manufacturing firms manage task conflict with their outsourcing suppliers in the context of China. Using survey data collected from manufacturing firms operating in China, we found that when implementing R&D and manufacturing outsourcing, both formal control and Chinese guanxi are useful governance mechanisms for suppressing outsourcing task conflict. We also observe that Chinese guanxi moderates the impact of formal control on task conflict, especially when implementing R&D outsourcing. By investigating the roles of formal control and Chinese guanxi in outsourcing practices in China, this study contributes to a better understanding of how to manage task conflict effectively.     

How to leverage the impact of R&D on product innovation? The moderating effect of management innovation

Although research and development (R&D) is a key indicator of (technological) innovation, scholars have found mixed results regarding its effect on product innovation and firm performance. In this paper, we claim that variations in R&D effectiveness can be explained by changes in a firm’s social system, in particular in its management innovation. It is still unclear how management innovation influences R&D effectiveness in terms of product innovation. In this study, we address this theoretical and empirical gap in the innovation literature. Our theoretical arguments and findings from a large-scale survey among Dutch firms show that R&D has a decreasingly positive relationship with product innovation, particularly for firms with low levels of management innovation. However, in firms with high levels of management innovation, this relationship becomes more J-shaped, especially in small and medium-sized firms. Our findings also appear to indicate that management innovation may be more important for competitive advantage than just R&D. Overall, our insights reveal that management innovation is a key moderator in explaining firms’ effectiveness in transforming R&D into successful product innovation.     

Vertical integration and innovation

Innovation is a driving force for most industries, where it moreover affects many stages of the vertical chain. We study the impact of vertical integration on innovation in an industry where firms need to undertake risky R&D investments at both production and distribution stages. Vertical integration brings better coordination within the integrated firm, which boosts its investment incentive at both upstream and downstream levels. However, it is only mutually beneficial for firms to integrate when both upstream and downstream innovations are important. When innovation is irrelevant at one level, firms favor instead vertical separation. The analysis provides insights for the wave of mergers and R&D outsourcing observed in the pharmaceutical industry and other vertically related industries.     

The growth and management of R&D outsourcing: evidence from UK pharmaceuticals

Outsourcing of research and development (R&D) activities has become a major management issue for R&D and technical managers within firms. It has also been of growing concern to academics who are trying to chart the implications of the increasingly distributed nature of research and innovative activities in advanced economies. This study is based on a survey of research-based pharmaceutical companies operating in the United Kingdom conducted in 2004–2006. The aim of this paper is to outline the main reasons for pharmaceutical firms to outsource R&D and the management practices followed by such companies in relation to outsourcing. The research results provide interesting findings in relation to, for example, the reasons behind outsourcing, the decision-making processes behind such practices and barriers to outsourcing arrangements. These issues are evaluated together with the characteristics of the firms and the specific project outsourced.     

Types of R&D Collaborations and Process Innovation: The Benefit of Collaborating Upstream in the Knowledge Chain

This paper explains how research and development (R&D) collaborations impact process innovation; given the differences in innovation mechanisms, prior insights from studies of product innovation do not necessarily apply to process innovation. Extending the knowledge‐based view of the firm, this paper classifies four types of R&D collaborations—with universities, suppliers, competitors, and customers—in terms of two knowledge dimensions: position in the knowledge chain and contextual knowledge distance. Position in the knowledge chain is the position of the R&D collaboration partner in the knowledge chain of the industry—the input–output sequence of activities that result in the transformation of raw materials into products that are used by end customers. Based on this knowledge chain, this paper considers universities and suppliers as upstream R&D collaborators, and competitors and customers as downstream R&D collaborators. Contextual knowledge distance is the difference in industry‐related contexts of operation of the R&D collaboration partners and the firm. Based on this, this paper views R&D collaborators that are suppliers and competitors as having low contextual knowledge distance to the firm, and R&D collaborators that are customers and universities as having high contextual knowledge distance to the firm. Using this classification, this paper proposes a ranking of R&D collaborations in terms of their impact on process innovation: R&D collaborations with suppliers have the highest impact, followed by R&D collaborations with universities, then R&D collaborations with competitors, and finally R&D collaborations with customers. These arguments are tested on a four‐year panel of 781 manufacturing firms. The results of the analyses indicate that R&D collaborations with suppliers and universities appear to have a positive impact on process innovation, R&D collaborations with customers appear to have no impact, and R&D collaborations with competitors appear to have a negative impact. As a consequence, the main driver of the impact of R&D collaborations on process innovation appears to be position in the knowledge chain rather than contextual knowledge distance. These novel ideas and findings contribute to the literature on process innovation. Even though process innovation tends to be internal and tacit to the firm, it can still benefit from external R&D collaborations; this paper is the first to analyze this relationship and provide a theoretical framework for understanding why this would be the case. This study also has important managerial implications. It suggests that managers need to be careful in choosing the partners for their firms' R&D collaborations. Engaging in R&D collaborations with universities and suppliers appears to be helpful for process innovation, whereas conducting R&D collaborations with competitors may potentially harm process innovation.     

Right person in the right place: How the host country IPR influences the distribution of inventors in offshore R&D projects of multinational enterprises

Research summary : Prior work has shown that the strength of the intellectual property regime (IPR) in a host country influences offshore R&D to that country. Building on this work we propose that the strength of the IPR in a host country differentially influences the threat of knowledge leakage on projects that are produced for the location where the multinational firm is headquartered (home) versus the offshore location to which the R&D project is sent (host). We argue and show that when the host location has a weak IPR, fewer host inventors are involved in host R&D projects when compared to home R&D projects. We test our hypotheses using a dataset of patents held by US assignees, but coinvented in 43 host locations with differing IPR strength. Managerial summary : Multinational enterprises often cite the weak IPRs at emerging economy host destinations as a significant impediment to offshore R&D activities in those countries, despite the abundant supply of inexpensive scientific talent there. We find that the weak IPR at the host destination is a greater impediment to offshore R&D that is aimed for end use at the host market than for R&D that is aimed for end use globally or in the home market. Since IPRs are local, a weaker IPR at the host location does not protect IP that is relevant to the host market. Since the IPR at the home country is more relevant for technologies aimed at the home market, the IPR at the host country is irrelevant for such R&D projects. Copyright © 2015 John Wiley & Sons, Ltd.     

Non‐R&D innovation and firms’ new product performance: the joint moderating effect of R&D intensity and network embeddedness

Non‐R&D innovation increasingly plays a critical role in explaining firms’ new product performance. Yet, there has been little research on the consequences and contingent mechanisms of non‐R&D innovation for firms embedded in collaborative network environments. To address this research gap, we investigated a conceptual framework of non‐R&D innovation using data drawn from Chinese manufacturing firms. First, we found that non‐R&D innovation positively affects firms’ new product performance. Second, we discovered that high R&D intensity positively strengthens the impact of firms’ non‐R&D innovation on new product performance. Third, we provided critical analysis of the role of non‐R&D innovation in promoting new product performance, accomplished by enhancing R&D investment while simultaneously improving the degree of network embeddedness. Our findings extend both the non‐R&D innovation literature and open innovation literature while providing managers with several key recommendations.     

企业R＆D商业化能力研究

知识经济的飞速发展凸显出技术创新的重要性，企业R＆D商业化能力作为企业技术创新能力的重要组成部分越来越被人们所重视。本文认为，企业R＆D商业化能力的强弱在很大程度上影响着R＆D投入的收益多少．企业可以从多个层次来改善其R＆D商业化的水平．不同的商业化途径对R＆D的盈利水平亦有着显著影响。企业应该重视其R＆D商业化能力的改善．因为．它为企业在技术创新活动中实现真正意义上的自主提供了必要的资源支持．是企业实现自主创新战略的必然选择。     

Retrospective relational sensemaking in R&D offshoring

To address the increasing relational challenges in international R&D collaboration, the present study develops a framework for understanding retrospective relational sensemaking in R&D offshore relationships. Using a comparative case study methodology, this study analyzes relational data from 56 interviews regarding four R&D offshore relationships between two large Swedish multinational companies and four R&D offshore partners. This study contributes to existing sensemaking theory by constructing a framework for retrospective relational sensemaking, including triggers and the phases of enactment, selection, and retention, to improve relational learning in R&D offshore relationships.     

上海生物医药研发外包服务支术市场现状分析

上海生物医药产业的发展非常迅速,而研发外包服务（主要是离岸外包）成为这一产业中最耀眼的明珠。本文根据技术市场管理办公室登记涉外合同交易数据库,分析了上海生物医药研发外包行业的现状、特点、市场规模、优势领域等情况,同时也分析了研发外包服务业在发展过程中存在的一些问题,并提出笔者的一些观点和看法。     

R&D employment effects of financial slack generated by R&D tax exemption: The importance of firm-level contingencies

This paper focuses on R&D employment effects due to financial slack generated by an R&D tax exemption scheme in Belgium. The tax exemption is granted without firm-level requirements, which facilitates testing firm-level contingencies on the influence of the generated financial slack. We find that R&D employment effects increase with the level of the R&D tax exemption related to financial slack resources and that this positive relation is more outspoken for older firms and for firms with an intermediate share of R&D tax exemptions in the overall mix of R&D policy support. No effects are found for firm size and its R&D intensity. These findings suggest targeting the R&D tax exemption support according to firm characteristics to obtain longer term R&D employment effects. The focus on R&D employment adds to the literature on the evaluation of R&D policies which is largely oriented toward R&D expenditure and innovation outputs.     

The path of R&D efficiency over time

In this paper we investigate the pattern of R&D efficiency in terms of the number of product innovations achieved by firms over time. Using a panel dataset of Spanish manufacturing firms for the period 1990–2006, we follow the innovative performance of R&D active firms and observe that innovation rates change over firms' R&D histories. To explain these facts we propose a model that explicitly acknowledges the twofold composition of firms' R&D expenditures, comprising spending on both physical capital for R&D projects and payments to researchers. We regard this latter component of R&D as a source for dynamic returns to firms' R&D investments. Consequently firms' innovation outcomes clearly depend on how long they have been investing in R&D and also on whether there have been any interruptions in the temporal sequence of R&D activities. Our results suggest that R&D activities exhibit dynamic returns that are positive but at a decreasing rate, and that interruptions in R&D engagement reduce R&D efficiency.     

The perilous leap between exploration and exploitation

Research summary : R&D‐based exploration and exploitation are necessary in order for firms to have sustainable competitive advantage. Yet, transitioning between these orthogonal types of R&D is considered profound organizational change. Building on recent research showing that compact, significant changes in R&D expenditure is an antecedent to the transition between explorative and exploitative R&D, I show that this leap between exploration and exploitation is quite hazardous. The magnitude of changes in R&D expenditure, whether increases or decreases, is positively associated with organizational failure. Firms maintaining higher levels of absorptive capacity are more capable of surviving the leap from R&D‐based exploitation to exploration, and firms that do not use reductions in R&D expenditure to manipulate short‐term earnings performance are more likely to survive the leap from exploration to exploitation. Managerial summary : In order to survive and thrive, innovative companies must be able to exploit their existing competencies, and to explore for new ones once those current competencies decline in value. However, transiting from one form of innovation to the other is difficult because the skills required to explore are fundamentally opposed to those required to exploit. In this article, I describe how difficult this leap between exploration and exploitation can be. I show that the move between R&D‐based exploration and exploitation is related to organizational failure. In addition, firms that are superior learners are more likely to survive the leap from exploitation to exploration, and firms that are not cutting R&D expenditure to manipulate earnings are more likely to survive the leap from exploration to exploitation. Copyright © 2015 John Wiley & Sons, Ltd.     

Make,buy, organize: The interplay between research,external knowledge,and firm structure

We bridge current streams of innovation research to explore the interplay between R&D, external knowledge, and organizational structure—three elements of a firm's innovation strategy, which we argue should logically be studied together. Using within‐firm patent assignment patterns, we develop a novel measure of structure for a large sample of American firms. We find that centralized firms invest more in research, and patent more per R&D dollar, than decentralized firms. Both types access technology via mergers and acquisitions, but their acquisitions differ in terms of frequency, size, and integration. Consistent with our framework, their sources of value creation differ: while centralized firms derive more value from internal R&D, decentralized firms rely more on external knowledge. We discuss how these findings should stimulate more integrative work on theories of innovation. Copyright © 2013 John Wiley & Sons, Ltd.     

Information leakage in innovation outsourcing

This paper studies an R&D outsourcing contract between a firm and a contractor, considering the possibility that in the interim stage, the contractor might sell the innovation to a rival firm. Our result points out that due to the competition in the interim stage, the reward needed to prevent leakage will be pushed up to the extent that a profitable leakage-free contract does not exist. This result will also apply to cases considering revenue-sharing schemes and a disclosure punishment for commercial theft. Then, we demonstrate that in a competitive mechanism where the R&D firm hires two contractors together with a relative performance scheme, the disclosure punishment might help and there exists a perfect Bayesian Nash equilibrium where the probability of information leakage is lower and the equilibrium reward is also cheaper than hiring one contractor.     

Interorganizational collaboration strategies and innovation abandonment: The more the merrier?

Investments in innovation activities involve uncertainty. Abandonments of innovative projects are frequent and can entail great losses. Interorganizational collaboration can help a firm to leverage and complement its own competencies and technologies, contrasting the factors that may cause the abandonment of innovation activities. This article shows that firms collaborating with a wider network of external partners to conduct their innovation activities are less likely to abandon them. The article also analyses how different categories of partners among customers & suppliers, competitors, consultants & private R&D institutions, universities & public R&D institutions are associated with the risk of innovation abandonment. Finally, the results show that international collaborations are more likely associated with innovation abandonment than domestic ones. Strategic and theoretical implications are drawn.