Appropriability as the driver of internationalization of service-oriented firms

An important factor facilitating the internationalization of product-oriented companies is an appropriability regime allowing a firm to become the sole or dominant provider of specific products. The challenge for service firms is that many appropriability mechanisms, such as patents, are traditionally targeted at protecting tangible products and processes from imitation. In this study, we address this issue and examine the role of appropriability conditions as a facilitator of internationalization in the service sector. The results collected from the analysis of 209 firms suggest that a strong appropriability regime (especially in terms of formal mechanisms) positively affects the internationalization of service industry firms.     

Tax incentives… or subsidies for business R&D?

We study whether firms’ actual use of R&D subsidies and tax incentives is correlated with financing constraints -internal and external- and appropriability difficulties and investigate whether both tools are substitutes. We compare the use of both policies by SMEs and by large firms and find significant differences both across instruments and across firm size. For SMEs, financing constraints are negatively correlated with the use of tax of credits, while they are positively associated with the likelihood of receiving a subsidy. The use of legal methods to protect intellectual property is positively correlated with the probability of using tax incentives, but not with the use of subsidies. For large firms external financing constraints are correlated with instrument use, but results regarding appropriability are ambiguous. Our findings suggest that (1) direct funding and tax credits are not perfect substitutes in terms of their ability to reach firms experiencing barriers associated to market failures; (2) one size may not fit all in innovation policy when the type or intensity of market failure differs across firm size, and (3) subsidies may be better suited than tax credits to encourage firms, especially young knowledge-based firms, to start doing R&D.     

Towards understanding who makes corporate venture capital investments and why

This study examines when established firms participate in corporate venture capital (CVC). We build on the resource-based view of interfirm collaboration and emphasize the strategic flexibility of CVC relationships. We use longitudinal data on 477 firms from 1990 to 2000 to test our hypotheses. We find that firms in industries with rapid technological change, high competitive intensity and weak appropriability engage in greater CVC activity. We also show that firms that possess strong technological and marketing resources and resources developed from diverse venturing experience engage in greater CVC activity. Finally, we find that these firm resources moderate the influence of the observed industry effects in paradoxical ways.     

Intellectual property rights,imitation, and development. The effect on cross-border mergers and acquisitions

In this paper, we analyze whether the recent global process of strengthening and harmonization of intellectual property rights (IPRs) affects decisions of cross-border mergers and acquisitions (M&As). We investigate if IPRs have a differential effect across sectors of different technology content and for countries of different development level. Also, we study how imitation abilities of target countries interact with the tightening of IPRs. Using data for the post-TRIPS period (1995–2010), we estimate an extended gravity model to study the bilateral number of M&As, including a measure of the strength of IPRs systems on target countries and a set of control variables usually considered as determinants of M&As. The estimation results verify the gravity structure for M&As and show that IPRs –and enforcement– influence decisions of cross-border M&As in all sectors regardless of their technological content. However, IPRs are more important in countries with high imitation abilities and in sectors of high-technology content. Furthermore, a strengthening of IPRs leads to a larger increase of M&As in developing countries than in developed countries. These results call the attention on the possible implications for least developed economies and challenge the adequacy of a globally harmonized IPRs systems.     

Harmonizing IPRs on Software Piracy: Empirics of Trajectories in Africa

In the current efforts of harmonizing the standards and enforcement of IPRs protection worldwide, this paper explores software piracy trajectories and dynamics in Africa. Using a battery of estimation techniques that ignore as well as integrate short-run disturbances in time-dynamic fashion, we answer the big questions policy makers are most likely to ask before harmonizing IPRs regimes in the battle against software piracy. Three main findings are established. (1) African countries with low software piracy rates are catching-up their counterparts with higher rates; implying despite existing divergent IPRs systems, convergence in piracy rate could be a genuine standard-setting platform. (2) Legal origins do not play a very significant role in the convergence process. (3) A genuine timeframe for standardizing IPRs laws in the fight against piracy is most likely between a horizon of 4–8 years. In other words, full (100 %) convergence within the specified horizon will mean the enforcements of IPRs regimes without distinction of nationality and locality. Policy implications and caveats are discussed.     

The tradeoff between firm size and diversity in the pursuit of technological progress

Conclusion Our analysis lends support to both sides of the debate concerning the optimal firm size for achieving technical advance. It provides a basis for why industries composed of many small firms will tend to exhibit greater diversity in the approaches to innovation pursued, and why greater diversity will contribute to more rapid technological change. It also provides a basis for why industries populated by larger firms will achieve a more rapid rate of technical advance on the approaches to innovation that are pursued. These arguments together suggest that a tradeoff exists between the appropriability advantage of large size and the advantages of diversity that accrue from numerous small firms. Our analysis has been more appreciative than rigorous and, indeed, often explicity speculative. While we attempted to raise important questions, our framework requires more structuring before we can be confident about any of our conclusions. Even in its inchoate form, however, our analysis demonstrates that much needs to be done before the current debate about firm size can seriously inform policy. If we accept the plausibility of our basic framework, it focuses attention on a range of issues and questions. The fundamental premise of our analysis is that firm capabilities and perceptions differ within industries. This premise is not, however, widely reflected in analyses of industry behavior and performance, which typically take some representative firm as their starting point. Indeed, the analytic utility of our particular premise deserves scrutiny. Are differences in firm capabilities and perceptions as critical to explaining the industry patterns in innovative activity and performance as we suggest? Do these differences persist? Is our abstract characterization of these differences and their effects on innovative activity up to the task of providing a basis for policy?These intraindustry differences in capabilities and perceptions underpin the hypothesized relationship in our framework between the number of firms within an industry and the number of distinct technological activities pursued by the industry as a whole. Surely this hypothesis should be tested. To establish the relationship between numbers of firms and technological diversity, we also made two important assumptions, which themselves should be examined. First, we assumed that firms independently decide upon which approaches to innovation to pursue.This assumption precludes the clustering of firms around innovative activities due to imitation, a phenomenon highlighted by Nelson (1981) and Scott (1991). To the degree that innovative activities yield relatively fast, public results, the assumption may be suspect. While our evidence indirectly suggests that such clustering may not be critical for explaining innovative activity in a wide range of industries, more research would be helpful. Second, we assumed that the number of approaches to innovation pursued by firms is independent of their size, implying large and small firms will tend to pursue the same number of approaches. This assumption probably does not apply to the smallest firms within an industry, particularly to the extent that such firms are often not full line manufacturing firms. Does it apply, however, to the medium to large firms that account for the preponderance of R&D and economic activity inthe manufacturing sector? While our evidence again provides indirect support for this claim, more empirical and theoretical research is indicated.We also made other claims and assumptions that deserve further attention. For example, we argued that greater technological diversity stimulates technical advance and provides gross increments to social welfare. Assuming it exists, the mechanism linking diversity and technical advance has never been examined empirically and is not obvious. Our assumption that expected firm growth due to innovation is increamental played an important role in permitting usto hypothesize an appropriability advantage of large size. Again, both the assumption and its alleged effect on innovative activity are worth examining. Finally, we also need to test whether the relationship between R&D and firm size within industries depends upon appropriability conditions, particularly upon the extent to which firms can sell their innovations or grow rapidly due to innovation. In conclusion, this litany of reasonable but unsubstantiated assumptions and arguments should make clear that this paper is only a modest beginning of a daunting research agenda.

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Intellectual property rights,FDI, and technological development

This paper presents two simultaneous trade-offs faced by a developing country in protecting intellectual property rights (IPRs), namely (1) between attracting foreign direct investment and deterring international technology spillovers, and (2) between encouraging domestic innovation and suppressing technology diffusion. The optimal level of IPR protection depends on the technological capability of the host country. In less developed countries, IPRs should be just strong enough to induce FDI since international technology spillovers are the dominant source of technological development. A stronger level of IPR protection is instead recommended for more advanced emerging economies as a tool to exploit the potential of their domestic innovators. The results cast doubt on the adequacy of globally harmonized IPR standards that do not consider the level of development.     

When an Importer's Protection of IPR Interacts with an Exporter's Level of Technology: Comparing the Impacts on the Exports of the North and South

Using bilateral trade data of countries from 2000 to 2007, this paper contributes to the empirical literature on the role of intellectual property rights (IPRs) in global trade. The existing literature has focused on how IPRs in the destination country affect exports from a source country. In this paper, we add an additional dimension: the level of technology of the exporting country (LT). This is quite important for distinguishing the impact of IPRs on the exports of developed and developing countries, since the technology levels vary across countries at different stages of development and intellectual property rights better protect exports that are technologically advanced than exports that are imitative and potentially infringing. By factoring in the level of technology (LT), our empirical analysis makes the case that IPRs can act as a barrier to the exports from the South, especially the rapidly catching‐up economies, and thus be a source for the middle‐income trap phenomenon.     

New technologies and technological information in small businesses

The use of new management and production technologies is essential for most small businesses if they are to improve their competitiveness and thus face up to increasing national and international competition. This presupposes access to scientific, innovative, and technological information, making firms aware of developments in technology and the resources available for obtaining and using the technology correctly.Many authors have already shown that small businesses lag far behind large firms in their use of new technologies. Some reasons put forward to explain this include the more generally limited resources of small firms and a national structure for the production and transfer of new information that is poorly adapted to small business needs. However, assuming that some gap between small and large firms actually exists, how can we explain that most small firms nevertheless not only survive, often for a very long time, but also produce a return comparable to large firms?One way of doing this is to study the situation of small businesses by using methods adapted to the small business sector and not developed for large firms. It is important to analyze not only the characteristics of the firms themselves, but also what they do to become competitive.Our own research in the small business field has shown that the lag in terms of new computer technologies has decreased considerably in recent years, and also that it tends to be smaller in many industries if specific advanced technologies are added. The perspective also changes if we examine the innovation capacity of small business, and its ability to develop niches or to work on smaller and more specific markets.The same applies to technological watch. An inquiry following a case study shows that small firms use different channels according to their objectives and turn to networks to overcome the limits of the information transfer system they use. They evaluate information by comparing different sources, and they use iterative techniques and intuition to complete their information and to decide on their investments. New technology acquisition by small and large firms cannot be compared; for small firms, it is an entrepreneurial act that in no way resembles the behavior of larger firms.However, to understand small businesses, further research is required into their behavior in different kinds of decision-making situations. To do this, we need tools developed specifically for the small business sector, free of any presumption of the supposedly better performance of large-scale production.     

The Innovative Behavior of Spanish Enterprises and Its Impact on Salaries

Our aim was to analyze the effects of firms' innovative behavior on their employees' salaries in the Spanish manufacturing industry. We found a premium in the wage paid by innovative firms, regardless of size. However, when taking company size into account, we found that the effect of innovations was greater in small-medium enterprises (SME), contrary to what was expected. The inferences of the models estimated suggest that the higher the market concentration the weaker the appropriability regime, especially for SMEs. However, at the same time, a firm's innovations reduce the impact of market concentration on wages, making innovating firms more autonomous than non-innovating ones. Even more, to be able to innovate, firms have to isolate their employees' salaries from the product market. These results hold regardless of firm's size, but have a greater impact on the small-medium group of firms. Finally, our analysis backs the assumption that salaries in both large and small-medium firms are generated by two distinct economic regimes, supporting the proposition that an SME is not simply a scaled-down large firm.     

Interorganizational Trust and Technology Complexity: Evidence for New Technology‐Based Firms

Integrating the transaction cost economics and relational perspectives, this paper puts forward that technology complexity within new technology‐based firms negatively influences the level of interorganizational trust in key partner relationships. Using a data set of 105 key partner relationships of 59 new technology‐based firms, we find that the new technology‐based firm's level of trust in its key partners is lower when the level of technology complexity is high. Findings further show that both relationship and partner characteristics moderate the technology complexity—trust relationship. These results show that technology complexity as an appropriability mechanism becomes endogenous to collaboration, thereby extending the Teece framework.     

Foreign direct investment and intellectual property rights: evidence from Hollywood's global distribution of movies and videos

Traditional thinking about intellectual property rights (IPR) suggests that as a country strengthens its IPR standards, firms will move their governance structures away from equity based institutions such as foreign direct investment (FDI) towards more market-based relations such as licensing agreements. This hypothesis is explored by examining the behavior of Hollywood studios in both the feature film and video markets in 40 foreign countries. The analysis reveals that the behavior of Hollywood studios is more complex than this: although moderate IPRs are associated with a high degree of licensing, both high and low standards of IPR encourage more integrated governance structures.     

Innovation and internationalization as growth strategies: The role of technological capabilities and appropriability

Firms grow either by launching new products (innovation) or by attracting new customers (internationalization) or by using a mixed strategy. An interesting question is whether innovation and internationalization activities are complementary or substitutive. The paper discusses the connections between technological capabilities, their appropriability, innovation activities, and internationalization, and derives hypotheses from the knowledge-based view of the firm. The hypotheses are empirically analyzed using survey data from 300 Finnish firms clustered as follows: (i) domestic replicators, (ii) domestic innovators, (iii) international replicators, and (iv) international innovators. The performance of the clusters is empirically analyzed, the success criteria being actual growth rate and profitability. We conclude that a profitable firm needs to have unused technological capabilities in order to exploit economies of scope through innovation. A strong appropriability regime strengthens growth. Internationalization and innovation combined is the most advisable option when domestic markets are limited.     

International trade,risk taking and welfare

This paper shows that the gains from opening up to international trade are smaller when firms do not fully internalize downward risk. I develop a general equilibrium model with two key assumptions. First, when faced with adverse productivity shocks, employers can lay off workers without fully paying the social costs of their layoff decisions, a common feature of many institutions. Second, when opening to international trade, the elasticity of demand perceived by an industry increases. In this setup, I show that international trade induces firms to take more risk and (i) raises the equilibrium unemployment rate, (ii) increases the volatility of sectoral sales and (iii) increases welfare proportionately less than in the absence of the externality. Inducing firms to internalize the costs of layoff (Blanchard and Tirole, 2003) therefore appears even more important in a globalized world.     

Markups,import competition and exporting

This paper analyses the relationship between markups and international trade at the firm level using a large sample of French manufacturing firms for the period 1995–2007. In particular, the paper investigates the effect of increasing import competition from China on firms' price–cost margins and the way in which exporting interacts with this effect. The results show robust evidence that firms in more direct competition with Chinese imports decrease their markups. However, firms that become exporters experience a smaller reduction in their price–cost margins. Consistent with these findings, the results also show that firms facing tougher competition from China are more likely to start exporting to avoid such competitive pressures.     

Financial conservatism of private firms

The aim of this paper is to analyze the factors that motivate private firms to follow a conservative financial policy. Using a new definition of financial conservatism, we investigate a sample of 21,959 Italian private firms for the 1998–2006 period and look for the determinants of financial conservatism according to the main theories of capital structure and financing policy. Our findings show that financially conservative firms are smaller, with more intangible and less tangible assets, lower effective tax rates and follow a pecking order style financial policy. As has been found for their public counterparts, financially conservative private firms seem to pile up cash and their leverage potential before undertaking future investments.     

Cost of capital and market power: The effect of size dispersion & entry barriers on market equilibrium

A market power explanation for the observed empirical fact that large firms in a given industry pay less for their capital than small is developed. Larger firms in an industry are shown to pay less for their capital than small because they have more control over the market and the riskiness of their divided stream is correspondingly smaller. More firms in an industry with a given size dispersion raises the cost of capital to the incumbents, but proportionately more to smaller firms. However, the most significant result is that a greater dispersion of sizes will reduce the riskiness of the dividend stream of the larger firm and increase the riskiness of the smaller firm, causing an increase in the dispersion of capital costs. Hence product market power enhances capital cost efficiencies.     

Demand Shifts and Changes in Competition: Evidence from the Movie Theatre Industry

In this paper, I empirically examine how demand shifts affect firm behaviour. In particular, I study how competitive behaviour between firms changes across different demand states. For this purpose, I use price and concentration data from the Spanish movie theatre industry in 1995 and 2000. The evidence suggests that demand shifts change the competitive nature of the industry under study, and that this change differs across different demand shifts. Firms deviate less from tacit collusive behaviour when gains of deviation are smaller.     

Decision making behavior in smaller entrepreneurial and larger professionally managed firms

The main findings in this study are that: • Entrepreneurs from smaller firms are less comprehensive in their decision behavior than professional managers from larger firms, with comprehensiveness defined as the degree to which an individual follows a formal rational decision process; • As decision comprehensiveness declines, so too does organizational performance, both among entrepreneurs and professional managers.The present study was based on the responses of 15 entrepreneurs from smaller firms averaging 25 employees and 13 CEOs and other top level corporate executives from larger, more professionally managed firms averaging 740 employees. The firms were randomly selected from a list of mid-Atlantic electronic manufacturing firms. Field interviews and questionnaires were employed, as well as a decision scenario involving a series of questions to which the entrepreneur or professional manager responded.After reviewing the literature on entrepreneurship, the researchers noted that most of it focused on developing profiles of entrepreneurs—for example, that they were high achievers, impatient and made decisions quickly. However, little—if any—research has focused on the behavior of entrepreneurs, particularly when compared to that of professional managers. Given this gap in the research, a field study was designed to compare the decision behavior of entrepreneurs and professional managers. It was expected that entrepreneurs would be less comprehensive than professional managers, but given previous research on comprehensiveness, it was difficult to predict the consequences of this less comprehensive model for performance.The researchers note in the discussion and conclusion that the results of the study have major implications for entrepreneurs and professional managers. Granted that decision comprehensiveness should be emphasized, they question the ability of entrepreneurs to change their decision behavior. It is argued that many of the drawbacks of comprehensiveness can be overcome by more sophisticated planning techniques and information processing systems. The paper concludes by stressing the need for research on techniques and ways to train entrepreneurs and managers to be more comprehensive.In summary, the present study has produced some important preliminary findings. It confirmed in larger scale studies, they could have major implications for the manner in which entrepreneurs and professional managers are trained and developed.     

Effects of foreign acquisitions on R&D and high-skill activities

Using Swedish microdata, we find no evidence for the concerns circulating in the public debate that foreign acquisitions lead to reductions in both R&D expenditures and high-skilled activities in targeted domestic firms for either MNEs or non-MNEs. Previous studies have only focused on larger firms. In this paper, we are able to study the impact on smaller firms (fewer than 50 employees), which is important because 90% of the firms acquired by foreign enterprises meet this criterion. For this group of firms, there is no information on R&D, but by using the register of educational attainment, we obtain data on the share of high-skilled labour in all Swedish firms, irrespective of size. Interestingly, we find that among smaller firms, foreign enterprises tend to acquire high-productive, skill-intensive firms (cherry-picking). After the acquisitions, skill upgrading appears in acquired smaller, non-MNE firms, particularly in the service sector.