Integration,network and industrial innovation in technology sourcing overseas M&A: a comparison between China and South Korea

ABSTRACT

Appropriate integration in technology sourcing overseas M&A is effective for acquirers to improve their innovation network positions and to promote domestic industrial innovation. We use the technology sourcing overseas M&A of Chinese and South Korean manufacturing industries as samples for empirical analysis. The results show that post-merger integration strategy should match resource characteristics between acquiring and acquired firms to promote industrial innovation through innovation network position improvement. Specifically, high-degree integration should match high-resource-similarity / low-resource-complementarity acquired firms, low-degree integration should match low-resource-similarity / high-resource-complementarity acquired firms, and moderate-degree integration should match high-resource-similarity / high-resource-complementarity acquired firms. The acquirer’s home country institutional development enhances the effect of post-merger integration. This study provides guidance for promoting industrial innovation through post-merger integration.     

Open innovation and intellectual property strategy: the catch-up processes of two Chinese pharmaceutical firms

We explore the interaction of open innovation and intellectual property (IP) in two Chinese latecomer pharmaceutical firms in their catch-up process. Studying archival data, documentation, and interviews, we found that the two firms exhibited five periods that were characterised by different open innovation activities and R&D capabilities. In their early stages, the two firms lacked R&D functions; thus, they imported technologies and pursued production-oriented strategies. As they gradually entered into collaborations and established their R&D departments, open innovation and IP protection played important and dynamic roles in this process. Thus, a catch-up process involves not only acquiring technological capabilities and innovative competencies but also transforming a firm's capacity to strategies.     

Integration and autonomy in Chinese technology-sourcing cross-border M&As: from the perspective of resource similarity and resource complementarity

In this paper, we examine the match between resource relatedness and post-merger integration on technology innovation of acquiring firms to find the rationale behind technology-sourcing cross-border mergers and acquisitions (M&As) of Chinese multinational enterprises. Using a sample of 88 Chinese technology-sourcing cross-border M&As, we find that the acquirer will improve technology innovation when greater resource similarity between the acquirer and target firms is matched with a high integration degree and a low target autonomy level. Meanwhile, the acquirer can improve technology innovation when greater resource complementarity is matched with a low level of integration degree in technology-sourcing cross-border M&As. This paper provides the acquiring firms with fresh ideas of how to make the integration decisions of technology-sourcing overseas M&As. We hope to help multinational enterprises to achieve more outstanding technology innovation performance through technology-sourcing overseas M&As in an intense global competitive environment.     

Schumpeterian incumbents and industry evolution

This essay explores the role of established firms in the evolution of innovative industries. Both direct and indirect contributions are discussed. Besides innovation in their own industries, established firms are often among the pioneering entrants into related markets. They enable spin-off entrepreneurship and provide exit options for startups through acquisition. Furthermore, established firms help shape and directly support public research activities. The multiple roles of established firms, their interaction with new entrants in the innovation process, and the dynamics on industry evolution in an increasingly globalized world are not sufficiently well understood.     

The role of contracts and intellectual property rights in open innovation

Our exploratory empirical study, based on interviews and a survey of firms, addresses a number of questions on the role of formal contracts and intellectual property rights (IPR) in the context of firm-to-firm open innovation (OI). We find that firms active in OI have a very strong preference for the governance of their OI relationships with other firms through formal contracts. Also, despite the open nature of OI, firms still see IPR as highly relevant to the protection of their innovative capabilities. We find the degree of openness of firms, their formal legal attitude, and the competitive dynamics of their product market environment to be related to the preference of OI firms for IPR. Furthermore, the strength of firms’ internal R&D capabilities increases the positive relationship between openness and the preference for IPR.     

Foreign direct investment in R&D and domestic entrepreneurship in China’s manufacturing industries

This paper argues that internationalization of innovation and the related spillovers can also affect the likelihood of firm entry and exit into an industry. By making use of firm-level panel data from China over the period 2005 to 2007, this paper examines the impact of foreign direct investment (FDI) in research and development (R&D) and the related linkages on entry and exit likelihoods of domestic firms in (i) transport equipment and (ii) electrical machinery and equipment manufacturing industries. In order to evaluate the region-of-origin effect, this paper also separately examines the impact of FDI in R&D originating from (i) all countries except Hong Kong, Macau and Taiwan and (ii) Hong Kong, Macau and Taiwan. Furthermore, the impact of FDI in R&D on entry and exit of Chinese firms in the two industries is examined by splitting the data into large and small firms within the two industries. The results of the pooled probit regression reveal that FDI in R&D and the related spillovers can have a significant impact on the likelihood of entry and exit of domestic firms in transport equipment and electric machinery and equipment industries. The empirical analysis also suggests that the impact of changes in FDI in R&D and the related spillovers varies across firm size.     

OWNERSHIP STRUCTURE AND FIRM EXIT ROUTES

ABSTRACT

Our study presents empirical evidence about the role of ownership structure for firm exit probability by explicitly differentiating between distinct exit routes (bankruptcy and forced liquidation, voluntary liquidation, mergers and acquisitions – M&A, and removal from the court register). Based on the population of Slovenian firms in the 2006–2012 period and using multinomial probit, our findings support the predictions of agency theory. Ownership concentration, share of the largest owner, and the difference in shares between two largest owners all decrease the likelihood of exit for all studied exit routes but M&A. The magnitude of their impact is largest for exits, in which owners play a decisive role, i.e. voluntary liquidation and removal. The link between the number of primary owners and exit likelihood is U-shaped with the lowest exit probability for firms with around two owners.     

The boundaries of firms in the new economy: M&As as a strategic tool toward corporate technological diversification

Following the dynamic capabilities approach, we understand the recent wave of M&As as a corporate strategy mainly stimulated by the increasingly complex and uncertain techno-socio-economic environment in which firms operate. In this new situation, the boundaries of firms are in greater flux since firms are unable to develop individually all the competencies required to keep pace with the continual redefinition of business lines being driven by corporate competition. Using US patents granted to the world's largest firms, this paper analyses the dynamics of the sectoral specialisation of corporate technological profiles following large shocks that require some M&A deal. The findings of the analysis enable us to evaluate the adoption of M&As as a strategic tool to reshape corporate technological boundaries. On these grounds, we are able to identify patterns of technological diversification into strategic fields according to different models of industrial technological development.     

Configurations of innovation: predictable and maverick modes

This study reports on an investigation of modes of innovation in 43 firms in six industrial sectors: (i) pulp and paper; (ii) computer. services; (iii) pharmaceucticals; (iv) apparel; (v) metallic products; and (vi) financial brokerage services. A model incorporating context, process, strategy, organization and performance variables was built to serve as a base to identify empirical conjfigurations of models of innovation. Configurations are gestalts of variables that describe particular modes of innovative behaviour. The model includes uariables representing context, process, strategy, organization and performance. Modes of innovations were found to he highly sector-specific. In fact, most firms innovate in predictable ways, in conformity with the logic of innovation in their industrial environment. A significant minority of firms, however, adopt maverick behaviours, similar to modes of innovation that prevail in other industries. Modes of innovation thus cut across industry lines as a result of firm's combetencies, competitive situationes or managerial preferences. A taxonomy of modes of innovation cutting across industry lines is presented. The configurations which emerged from the data analysis were: science-based product innovators; (ii) entrepreneurial fast-track experimenters; (iii) global cost leaders; (iv) lethargic reliance on information technology and (v) on process adaptation.     

Becoming an acquirer and becoming acquired

This paper considers mergers and acquisitions (M&A) in Finland. We explain the likelihood that a firm acquires or is acquired by another firm. We try to find out whether the incidences of M&A are influenced by the firms' R&D activity, measured by the calculated R&D stock. We obtained a very robust result, which says that R&D stock increases the probability that a firm acquires in all industries. In the nonprocessing industries, R&D stock similarly increases the probability that a firm is acquired by another. In the processing industries, the firm's own R&D stock has, however, zero impact on the likelihood that another firm buys a firm concerned. We interpret these results indicating that M&A are used as instruments to transmit knowledge from one firm to another. In the nonprocessing industries, it is evident that knowledge capital cumulated in the target is the main motivation for the purchase. Then a buyer's own R&D—which also increases the probability of the trade—signals that a buyer is efficient in absorbing the purchased new technology. In the processing industries, the motive for acquisition is different. We discovered that in the processing industries, technology is rather transmitted from the buyer's firm than to the purchased firm. It looks like that, in these industries, the firms have decreased their unit costs by means of their R&D activity, and so through M&A, the appeared unit cost differences have been levelled.     

Sectoral Patterns Of Technological Change In Services

This article provides a comprehensive picture of the characteristics of innovation in services, using the results of the 1993–95 Italian innovation survey in services. Technological change does play a role in services: around one third of service firms have introduced a technological innovation in the period 1993–95. Process innovation, innovative investment and the acquisition and internal development of software represent the most important channels through which service firms innovate. R&D activities represent an important innovation source only for a small number of science and technology-based service industries. The sectoral analysis highlights the variety of innovative patterns, which should discourage any simple generalization about innovation in services. Accordingly, a sectoral taxonomy is proposed in which service industries are clustered according to the overall innovative performance of firms, the nature of the innovation activities carried out, the different knowledge bases underlying the innovation processes, and the different patterns of interaction through which service firms innovate.     

Local variety and innovation performance in the EU textile and clothing industry

ABSTRACT

A large body of the literature showed that related variety at local level is more relevant than unrelated variety for explaining the innovation performance of firms. Knowledge relatedness is usually measured by considering activities within the same industry (i.e. the same two-digit code) while activities in different industries are associated with unrelated variety. This approach is challenged by the increasing relevance of transversal technologies, i.e. technologies that are developed and applied in rather different sectors. As a result, between industry variety (i.e. unrelated variety) is expected to be more important than within industry variety (i.e. related variety). We test this hypothesis by examining the innovation activities of firms in the textile and clothing industry. The innovation model of these firms is characterized by low investment in R&D, little capabilities for autonomous innovation and dependence from knowledge suppliers belonging to different sectors. The empirical analysis, carried out over the 1996–2014 period at the EU NUTS2 level, shows that between industry variety has a greater impact than within industry variety for the innovative performance of firms.     

Configurations of innovation: predictable and maverick modes

This study reports on an investigation of modes of innovation in 43 firms in six industrial sectors: (i) pulp and paper; (ii) computer. services; (iii) pharmaceucticals; (iv) apparel; (v) metallic products; and (vi) financial brokerage services. A model incorporating context, process, strategy, organization and performance variables was built to serve as a base to identify empirical conjfigurations of models of innovation. Configurations are gestalts of variables that describe particular modes of innovative behaviour. The model includes uariables representing context, process, strategy, organization and performance. Modes of innovations were found to he highly sector-specific. In fact, most firms innovate in predictable ways, in conformity with the logic of innovation in their industrial environment. A significant minority of firms, however, adopt maverick behaviours, similar to modes of innovation that prevail in other industries. Modes of innovation thus cut across industry lines as a result of firm's combetencies, competitive situationes or managerial preferences. A taxonomy of modes of innovation cutting across industry lines is presented. The configurations which emerged from the data analysis were: science-based product innovators; (ii) entrepreneurial fast-track experimenters; (iii) global cost leaders; (iv) lethargic reliance on information technology and (v) on process adaptation.     

企业创新倾向、吸收能力与跨界技术并购创新绩效—— 一项模糊集定性比较分析

在吸收理论的基础上，结合行业技术环境和企业双元创新倾向，提出跨界技术并购企业创新绩效实现机制的整合性分析框架，并使用fsQCA对107个上市公司跨界技术并购案例进行构型研究。结果发现，在高创新绩效构型中，主并企业创新倾向与吸收能力不同维度间存在差异化匹配关系；企业潜在吸收能力与现实吸收能力间具有一定的替代关系，技术基础广度和吸收转化投入强度对于创新绩效提高相对重要；丰富的外部技术资源更有助于创新绩效提升。研究结论拓展了吸收能力理论，丰富了跨界技术并购领域实证证据，可为不同特征企业制定跨界技术并购决策提供参考依据。     

Employment And Mobility Of Workers In Industries With Different Intensity Of Innovation: Evidence On Italy From A Panel Of Workers And Firms

In this paper a panel of workers and firms is used to investigate employment composition and dynamics in industries which differ by innovation intensity. To define the latter industry-wide statistics were used (for a subset of 2,800 firms, individual data on R&D expenditures and investments in innovative processes were available from a survey on manufacturing). Firms and workers are observed over the period 1985–1991. The paper document an high rate of labour turnover. Annual separation rates are high in all size-classes, but they decline from 50% in small firms (less than 20 employees) to 13% in large ones (with more than 1,000 employees). Separations are inversely related to an industry's innovative intensity (from 18% in the highly innovative industries to 31% in the traditional industries). A logit model, which controlled for the characteristics of workers and firms, showed that the probability of separation is higher among manual and young workers and decreases monotonically with the firm size. The probability of separation declines as job tenure and, perhaps more importantly, the individual's wage increases. After controlling for these factors, the evidence suggests that the highest probability of separation is in traditional industries, the lowest is in the more innovative industries. The result is strengthened when firm-level data on R&D and other innovative expenditures are used. Other things being equal, firms that invest in R&D have a more stable labour force, and firms that invest in non-innovative processes have a less stable labour force. We therefore find empirical evidence to support the hypothesis that more innovative firms cultivate more durable employer-employee relationships. The fraction of job-to-job moves (with no intervening period of unemployment) on total separations qualifies the turnover of workers. Controlling for firm size, the percentage of job-to-job moves increases fairly regularly with worker's skills and with the industry's innovative intensity. Thus the innovative intensity of he industry appears to have a positive effect on the share of job-to-job moves, while there is some evidence that it lowers the chances of separation. This result may be linked to the skills and specialisations of the workforce; it is certainly related to the higher demand for labour in the High Tech Sectors (where employment is growing) relative to the less innovative sectors.     

Indigenous technological capabilities,emerging market firms and the aerospace industry

While emerging market economies have developed significant technological capabilities and increased their share of global value-added in aerospace, they have done so largely through utilising foreign direct investment (FDI) and offset arrangements to enter supply chains that remain dominated by European and American firms. The paper examines whether emerging markets are developing indigenous technological capability in aerospace technologies. Drawing on patent data from the Thomson Innovation database, the study seeks to understand whether anchor tenant capability is indeed forming in emerging markets. A tech-mining method is applied. The study suggests that China, in particular, has dramatically increased its innovative capacity in the area. However, the data also demonstrate the significant advantages enjoyed by incumbent firms from Europe and the USA, suggesting that the complexity of aircraft R&D remains a formidable barrier that can only be surmounted by determined government policies and anchor firms equipped with substantial innovation capabilities.     

The firm-level employment effects of innovations in high-tech US manufacturing industries

We focus on four two-digit manufacturing industries that are known for their high patenting activity. We then use Principal Components Analysis to generate a firm- and year-specific ‘innovativeness’ index by extracting the common variance in a firm’s patenting and R&D expenditure histories. To begin with, we explore the heterogeneity of firms by using semi-parametric quantile regression. We then move on to parametric regressions that include a weighted least squares (WLS) analysis, which explicitly takes into account the different job-creating potential of firms of different sizes. As a result, we investigate the effect of innovation on total number of jobs, whereas previous studies have focused on the effect of innovation on firm behavior. Indeed, previous studies have typically taken the firm as the unit of analysis, implicitly weighting each firm equally according to the principle of ‘one firm equals one observation’. Our results suggest that firm-level innovative activity leads to employment creation that may have been underestimated in previous studies.     

Effect of new product alliances on building cross-functional capability: cross-fertilisation or cannibalisation?

ABSTRACT

The extant literature has focused mainly on how establishing alliances helps firms develop their capabilities within focal functional areas, while paying limited attention to the cross-functional effects of alliances. Drawing on the knowledge-spillover literature and resource-dependence theory, this study investigates the effects of new product development (NPD) alliances on building cross-functional capabilities, testing the influences of important organisational, strategic, and environmental contingencies. Based on survey data collected from 212 Chinese firms, the findings reveal that, for resource-abundant firms, R&D-focused NPD alliances have cross-functional fertilisation effects on marketing capabilities; whereas for resource-constrained or highly innovative firms such alliances cannibalise marketing capabilities; in dynamic markets, marketing-focused NPD alliances cross-fertilise technological capabilities, but such an effect is weaker in firms adopting a highly incremental innovation orientation. Overall, this study sheds new light on how NPD alliances affect cross-functional capabilities under important contingencies.     

R&D expenditures and firm growth – is small beautiful?

ABSTRACT

This paper examines how efficiently different groups of firms use their R&D expenditures. To this end, it investigates how the empirical relationship between firms' R&D expenditures and their sales growth varies with different values of firm size, firm age, and the number of firms in the respective industry. Using panel data for Switzerland ranging from 1995 to 2012, the paper finds that smaller, more mature firms show a more positive relation between R&D expenditures and sales growth than both relatively larger or younger firms. The paper argues that, on the one hand, these firms can benefit from various small size advantages in the R&D process, such as more motivated researchers, caused by a stronger connection to the firm's fate. On the other hand, these firms can also benefit from a well-established R&D department that allows absorbing the latest technological developments. The paper further finds that industries consisting of many small firms show a more positive relation between R&D expenditures and sales growth than industries consisting of only a few large firms. The intuition behind this result is that industries consisting of many small firms imply more independent innovative trials, which then together result in a higher probability of discovering successful innovations. In sum, the paper finds that groups consisting of a large number of small, more mature firms spend their R&D in the most efficient way.     

An evolutionary approach to regional systems of innovation

This article examines how the birth and the development of regional systems of innovation are connected with economic selection and points to implications for regional-level policies. The research questions are explored using an evolutionary model, which emphasizes geographical spaces and production of intermediate goods. In particular, we are concerned with how cooperative behaviour of technology producers is affected by the need to protect technological secrecies and of being financially constrained by firms demanding innovative input. Based on the theoretical model, we provide an analysis using computer simulations. The primary findings are, first, that the model generates predictions suited for empirical research as to the way in which economic selection influences cooperative behavior of innovative actors. Second, we demonstrate how a region’s entrepreneurial activity and growth can be controlled in a decentralized way by regions.