The Two Faces of R&D: Does Firm Absorptive Capacity Matter?

This paper examines the dual effect of firm R&D efforts on productivity growth for Swedish manufacturing firms. The R&D efforts do not only stimulate innovation but also enhance firms?? ability to identify, assimilate and exploit new knowledge from the environment (Cohen and Levinthal. Economics Journal 99:569?C596, 1989). In this paper, we assume that the principal channel of transmission of new knowledge is through I/O linkages. Our econometric evidence suggests that in addition to the firm??s own R&D activities, R&D spillovers embodied in traded goods within the industry, others imported from abroad, and technology spillovers transferred from the technological frontier within an industry are important determinants of firms?? productivity growth. Results suggest that domestic R&D spillovers following the I/O links between industries are of minor importance in this respect. We also analyze whether firms?? absorptive capacity matters for productivity growth. Analyzing absorptive capacity is particularly important for assessing the effective contribution of spillovers from other firms. The effect of a firm??s absorptive capacity is found to interact positively with imported R&D spillovers, whereas domestic rents spillovers seem to play a minor role for productivity growth.     

The role of open innovation in emerging economies: Do companies profit from the scientific knowledge of others?

Our contribution lies in explaining why inter-firm variations in the strategic decision to actively seek and acquire external scientific knowledge impact not only financial performance but also the effects of firms’ own R&D. We further demonstrate that the performance implications of using external knowledge and technologies vary considerably depending on their source (domestic or foreign). Knowledge sourcing from domestic organizations has negligible consequences for financial performance and an adverse effect on firms’ own R&D. By contrast, knowledge acquisition from foreign countries results in superior performance and assists firms in unlocking their innovation potential.     

Differential effects of pre- and post-acquisition R&D expenditures on post-acquisition performance

Drawing from the behavioral theory of the firm and the resource-based view, we argue that different types of R&D (explorative and exploitative) and the timing of R&D investments (pre- and post-acquisitions) have differential effects on post-acquisition performance. By using a sample of 396 technology acquisitions, we find that pre-acquisition explorative and post-acquisition R&D expenditures are more beneficial for post-acquisition performance than are pre-acquisition exploitative and post-acquisition explorative R&D expenditures. Our results also show that firms investing in explorative R&D in the pre-acquisition stage and then exploitative R&D in the post-acquisition stage have better post-acquisition performance than firms that do otherwise.     

When do firms benefit from university–industry R&D collaborations? The implications of firm R&D focus on scientific research and technological recombination

Firms' access to academic discoveries through R&D collaborations has been shown to enhance their patent performance. However, increasing both internal and external R&D activities can lead to high knowledge redundancy and coordination costs. This paper examines what kind of R&D focus inside the firm will improve or reduce the benefits of R&D collaborations with universities. Our results show that technological recombination focus strengthens the relationship between university collaborations and patent performance, whereas scientific research focus weakens the relationship. These results also differ between young and old firms, implying that firms may shift their R&D focus according to their collaborative objectives.     

Domestic vs. International Spillovers: Evidence from Swedish Firm Level Data

This paper investigates the association between total factor productivity growth and the R&D expenditures of Swedish manufacturing firms in the presence of domestic- and international R&D spillovers. The paper assumes that the principal channel of transmission of new technology is through I/O relations. Econometric evidence suggests that international as well as domestic inter-industry R&D spillovers are important determinants of firms’ productivity growth in the long run. The R&D spillovers generated within the industry and following I/O links seem to be of minor importance in explaining productivity growth. It seems likely that within-industry productivity spillovers follow other channels than I/O flows, such as horizontal spillovers through copying of new products and processes, or labour turnover. The use of a convergence parameter is one way to check for such within-industry technology flows. Our results indicate that a catch-up process exists by which the non-frontier firms in the Swedish manufacturing sector absorb knowledge spillovers from the leading firms in the industry. Finally, a firm’s own R&D efforts are found to be more or less positively correlated with the TFP growth, maybe the contribution from R&D efforts in some sense are underestimated.     

The roles of R&;D in new firm growth

Innovative start-ups are an important driver of economic growth. This article presents empirical evidence on the effects of research and development (R&D) on new product development, interfirm alliances and employment growth during the early life course of firms. We use a dataset that contains a sample of new firms that is representative of the whole population of start-ups. This dataset covers the first 6 years of the life course of firms. It is revealed that R&D plays several roles during the early life course of high-tech as well as high-growth firms. The effect of initial R&D on high-tech firm growth is through increasing levels of interfirm alliances in the first post-entry years. R&D efforts enable the exploitation of external knowledge. Initial R&D also stimulates new product development later on in the life course of high-tech firms, but this does not seem to affect firm growth. R&D does not affect the growth rate of new low-tech firms, which seem to be driven mainly by the growth ambitions of the founding entrepreneur. The results show that R&D matters for a limited but important set of new high-tech and high-growth firms, which are key in innovation and entrepreneurship policies.

How does R&D internationalization in multinational firms affect their innovative performance? The moderating role of international collaboration in the energy industry

This paper examines the effects of the degree and geographic diversification of a firm’s R&D internationalization on its innovative performance. We use an unbalanced panel dataset of 401 observations from 110 multinational firms operating in the energy industry over a period of six years to support the argument that both the degree and the geographic diversification of a firm’s R&D internationalization have an inverted U-shaped relationship with a firm’s innovative performance. Our results also show that collaboration among R&D units located in different countries moderates this relationship by reducing both the positive effects and the challenges of the degree of R&D internationalization. This paper extends the emerging innovation focus in the headquarters–subsidiary literature by contributing to our understanding of the implications of the international R&D activities of firms and supports the utilization of social exchange theory in order to identify the moderating influence of the collaboration among a firm’s R&D units located in different countries.     

Internal Versus External R&D: A Study of R&D Choice with Sample Selection

This paper extends previous analyses of the choice between internal and external R&D to consider the costs of internal R&D. The Heckman two-stage estimator is used to estimate the determinants of internal R&D unit cost (i.e. cost per product innovation) allowing for sample selection effects. Theory indicates that R&D unit cost will be influenced by scale issues and by the technological opportunities faced by the firm. Transaction costs encountered in research activities are allowed for and, in addition, consideration is given to issues of market structure which influence the choice of R&D mode without affecting the unit cost of internal or external R&D. The model is tested on data from a sample of over 500 UK manufacturing plants which have engaged in product innovation. The key determinants of R&D mode are the scale of plant and R&D input, and market structure conditions. In terms of the R&D cost equation, scale factors are again important and have a non-linear relationship with R&D unit cost. Specificities in physical and human capital also affect unit cost, but have no clear impact on the choice of R&D mode. There is no evidence of technological opportunity affecting either R&D cost or the internal/external decision.     

Technological acquisition and investment: lessons from recent indian experience

Most of the existing studies on investment functions ignore the role of technology acquisition in influencing investment decisions. This study argues that technology acquisition will decisively influence investment behavior, modernization, and expansion plans of firms. However, capability of the firms to acquire technology differs considerably. Following the Schumpeterian paradigm, we maintain that the entrepreneur's decision to invest and expand would depend on the technological opportunities available. The main role of the entrepreneur in the Schumpeterian framework is to exploit an invention or new technology in introducing new processes and products. The policy regime in India prior to 1985 did not permit the firms to take advantage of technological opportunities created abroad in introducing new technologies and expanding their capital base. The reforms introduced since 1985, for the first time, permitted the Indian firms to expand their product range, introduce new technologies, and increase their capacities without obtaining prior official sanction.This study, therefore, examines the role of technology acquisition in influencing investment decisions of private corporate firms in the aftermath of Indian economic reforms introduced in 1985. Using pooled cross-section data for 1987-88 to 1989-90 on a sample of 325 large corporate firms from seven industries, the present study examines the interfirm differences in investment behavior. The focus is on the impact of the first phase of economic reforms introduced in India post-1985. The model specified in the study postulates that acquisition of new technology made possible by economic reforms brings down costs and boosts demand. This increases the profit rate for firms using new technology. Technology acquisition per se takes place through technology imports via licensing or arms-length purchase of technology through the market, intrafirm transfer of technology by way of foreign direct investments, and direct import of capital goods embodying new technology. The process is facilitated by R&D expenditures.Empirical tests of the model carried out for each industry separately indicate that interfirm differences in the investment rate at the firm level are due to a number of factors. Opportunities to import machinery and license technology through arms-length purchase of technology influence the investment rate positively as these expenditures promote acquisition of technology. In other words, a government policy aimed at discouraging technology imports would also deter the growth of firms. Government policy before 1985 did hinder technology imports. This was partly to protect indigenous technology and partly to conserve foreign exchange. The results of the study further show that in-house R&D expenditures promote capacity expansion. This is despite the fact that most sample firms had small R&D budgets. Firms with R&D units are better placed to locate new technology and adapt it to suit Indian market conditions. This facilitates exploitation of technological opportunity leading to expansion of capital stock. However, the ability of a firm to exploit technological opportunities depended, to a considerable extent, on the age of its plants and machinery. This is because firms with older machinery and plants find the switch to new technology more difficult as most of their equipment and machinery are not suitable for modernization. The results of the study show that firms with machinery of recent vintage modernize and expand their capital base, using new technology, since it is easier for them to make the change.These empirical results have several policy implications for decision-makers in both the public and private sectors. The policymakers can draw inferences about the positive impact of the economic reforms on the capacity expansion and growth of firms. This, perhaps, provides a justification for taking the reform process to its logical end. Because economic reforms facilitate technology acquisition and capacity expansion, decision-makers ought to initiate the reform process in other spheres where it is yet to commence. Furthermore, modernization of plant and machinery and technology acquisition are a continuous process. The cost of modernizing a plant with dated machinery will be very high as older, outdated machinery is not compatible with the current vintage. An upgrade, therefore, is difficult if not impossible. Interruption of a technological upgrade due to changes in government policy ranging from total ban on technology imports to liberal import policy would enhance the cost of technology acquisition. The empirical results also indicate that even modest R&D activities facilitate the identification, location, and importation of relevant technology. Thus, firms with in-house R&D units grew faster. In countries like India, vigorous encouragement of R&D ought to be on the policy agenda of both corporate and government policy framers.Though our sample deals with Indian firms, it has relevance for other countries, because in most countries higher growth rates are being registered in industries that have been experiencing rapid technological development with better technological opportunities. Further, in a given country, firms that went in for acquisition of new technology invested more.     

Path dependence and resource availability: Process of innovation activities in Chinese family and non-family firms

Employing a process-based perspective and using a generalized method of moments (GMM) procedure, this paper examines the difference in innovation activities between family firms and non-family firms in China. We find that the level of research and development (R&D) by family firms is dependent on prior R&D spending and more so relative to non-family firms. Next, we find that R&D investment by family firms is more likely to be motivated by the availability of both internal and external cash flows relative to non-family firms. Further analysis suggests that these findings are unlikely to be driven by firm maturity.     

R&;D investment and financing constraints of small and medium-sized firms

This study tests for financial constraints on R&D investment and how they differ from capital investment. To identify constraints in the access to external capital, we employ a credit rating index. Our models show that internal constraints, measured by mark-ups, are more decisive for R&D than for capital investment. For external constraints, we find a monotonic relationship between the level of constriction and firm size for both types of investment. Thus, external constraints turn out to be more binding with decreasing firm size. On the contrary, we do not find such monotonic relationships for internal constraints. Differentiation by firms’ age does not support lower constraints for older firms.     

High-growth firms and innovation: an empirical analysis for Spanish firms

This paper analyses the effect of R&D investment on firm growth. We use an extensive sample of Spanish manufacturing and service firms. The database comprises diverse waves of Spanish Community Innovation Survey and covers the period 2004–2008. First, a probit model corrected for sample selection analyses the role of innovation on the probability of being a high-growth firm (HGF). Second, a quantile regression technique is applied to explore the determinants of firm growth. Our database shows that a small number of firms experience fast growth rates in terms of sales or employees. Our results reveal that R&D investments positively affect the probability of becoming a HGF. However, differences appear between manufacturing and service firms. Finally, when we study the impact of R&D investment on firm growth, quantile estimations show that internal R&D presents a significant positive impact for the upper quantiles, while external R&D shows a significant positive impact up to the median.     

The determinants of successful R&D consortia: government strategy for the servitization of manufacturing

The Taiwanese government has started to promote the concept of the ??servitization of manufacturing?? with a view to accelerating the servitization of the country??s manufacturing industries. The objective is to enable Taiwan??s industries to progress from manufacturing toward innovation, R&D, and services. The main purpose of this study is to explore the factors determining the formation of R&D consortia among Taiwanese firms. In a literature review and analysis, we distinguish the factors underlying the formation of these R&D consortia into internal and external factors. The findings show that four external factors are positively significant: the degree of industry competition, the appropriability conditions of innovations, government subsidies, and cooperation between firms in different industries. Firm size and firm age are among the internal factors that are significantly positive in the formation of R&D consortia.     

Threshold effects,technology purchasing,and firm outcomes: An absorptive capacity perspective

External technology purchasing is frequently adopted as a strategy to facilitate technology innovation and to enhance firm performance. However, research shows that there is considerable heterogeneity across firms with respect to innovation output and firm performance after technology purchasing. This study uses an absorptive capacity perspective in proposing the existence of an R&D employees threshold and a technology purchasing scale threshold. Using a sample of 1460 high-tech companies in China, we find support for both thresholds. We also find that the two variables are complementary with each other, jointly promoting innovation when both thresholds are crossed.     

R&D-Related Capabilities as Determinants of Export Performance

Empirical evidence from a sample of independent and privately held specialized suppliers all of which are engaged in formal R&D activities shows that specific R&D-related capabilities are determinants of different types of export performance. The major contribution of this paper is to take into account traditional measures of R&D activities as well as a broad range of R&D-related capabilities to further our understanding of the export behavior of SMEs in terms of volume and final destination of sales. Results suggest that the set of determinants varies with firms' internationalization process. In particular, determinants associated with the more global firms are significantly at odds with our traditional conception of a small firm and appear to be more aligned with the behavior generally found in proactive large exporters.     

Moderators on international diversification of advanced emerging market firms

Firms from advanced emerging markets are becoming notable players in the global marketplace. This study seeks to examine how these firms expand to international markets successfully. Drawing on R&D intensity and learning capability, this study finds that an s-shaped relationship exists between firm internationalization and performance. The results also show that R&D intensity and learning capability significantly strengthen the impact of internationalization on firm performance. These results imply that R&D intensity and learning capability are the main drivers of success for firms from advanced emerging markets in foreign markets.     

R&D spending,strategic position and firm performance

Based on R&D investment data from Chinese listed manufacturing firms, this paper examines the effect of R&D spending on firms’ future performance conditional on their strategic positions. We find that firms pursing a product differentiation strategy have more R&D spending than those with a cost leadership strategy. In addition, we document a positive effect of R&D spending on firms’ future performance if they adopt a product differentiation strategy. Meanwhile, for the firms that adopt a cost leadership strategy, the relationship between R&D spending and firm performance resembles an inversed U-shape. Furthermore, we find this inversed U-shape relationship only exists for non-state-owned firms. Overall, this paper provides guidance and useful suggestions on the efficient allocation of R&D resources for Chinese manufacturing firms.     

R&D Costs,Innovative Output and Firm Size in the Pharmaceutical Industry

This study examines the relationships between firm size, R&D costs and output in the pharmaceutical industry. Project–level data from a survey of 12 US–owned pharmaceutical firms on drug development costs, development phase lengths and failure rates are used to determine estimates of the R&D cost of new drug development by firm size. Firms in the sample are grouped into three size categories, according to their pharmaceutical sales at the beginning of the study period. The R&D cost per new drug approved in the US is shown to decrease with firm size, while sales per new drug approved are shown to increase markedly with firm size. Sales distributions are highly skewed and suggest that firms need to search for blockbuster drugs with above–average returns. The results are consistent with substantial economies of scale in pharmaceutical R&D, particularly at the discovery and preclinical development phases.     

Determinants and performance impacts of external technology acquisition

An important issue technology managers face today, and a vital component of any coherent technology strategy, concerns the decision to chose between developing technical capabilities internally or acquiring them through external means. While there is a clear indication in the literature of a greater reliance on external sources of technology, the factors driving this phenomenon and the potential benefit to firm performance have received limited empirical attention. This study addresses these issues by testing the relationships between several potential determinants of external technology sourcing, and the differential impacts of external vs. internal sourcing on firm performance.The study addresses three potential determinants of external technology sourcing: discontinuous technological change life cycle stage (the stage of the resulting life-cycle patterns developed around radical technological changes, or DTC-life cycle), intellectual property protection, and internally available resources. DTC-life cycles, and the industries built around them, are characterized by patterns of competitive behavior and a few key milestones, particularly the emergence of a dominant design. For example, the early stages of the life cycle are characterized by a focus on product technologies, as firms compete to develop the technical standard for the industry, while the later stages are more concerned with process technologies, as firms compete to produce the standard at the lowest cost. We argue that DTC-life–cycle analysis can inform the “internal vs. external” decision and that the evolution from a product-based competition to a cost-based competition will affect not only the focus of that external sourcing but also the benefits received as a result. Further, we suggest that perceived intellectual property protection and the level of resources available internally to the firm will also impact the decision to source technology externally.The growing interest in external technology acquisition would appear to reflect a positive effect on firm performance. The literature, however, is equivocal and often anecdotal, focusing only on a limited perspective of firm performance. We investigate the relationship between external technology acquisition (vs. internal technology development) and firm performance from three perspectives: product-, market-, and finance-based measures of performance. Further, given that the focus of external technology acquisition will be driven in part by life-cycle stage (earlier stages focus on product technology and later stages focus on process technology), we also study the effect that focus has on related firm performance measures; i.e., how will product-related external technology acquisition affect product-based performance measures and how will process-related external technology acquisition affect cost- (or finance) based measures. Finally, we investigate the impact of internal resource capability on the existing relationship between external technology acquisition and firm performance; i.e., the absorptive capacity argument.Data collected from 188 U.S. subsidiaries of both domestic (U.S.) and foreign firms were used to test hypothesized relationships among these variables: DTC-life cycles, intellectual property protection, internally available resources, external technology acquisition, and firm performance. While not all hypotheses were supported, the results on the relationship between external technology acquisition (vs. internal technology development) and the three firm performance perspectives warrant caution for technology managers considering or currently utilizing external sources of technology. The more salient results and implications for managers are presented below.First, regarding the potential drivers for external technology acquisition, the results varied with theoretical expectations. Contrary to theory, neither DTC-life cycle nor intellectual property protection exhibited a significant relationship to external sourcing, in general. However, consistent with expectations, the level of available internal resources did exhibit a direct and negative relationship to external acquisition. Firms with greater internal resources are less inclined to source externally.Second, technology managers would be well advised to consider a number of issues when approaching the decision to acquire technology externally or develop it internally. In all cases where a statistically significant relationship between external technology acquisition and firm performance was found, the direction was negative, indicating that acquiring technology externally detracts from firm performance. Further, in limited cases, that negative relationship is compounded in the presence of internal technology capabilities. Also, a significant relationship was found between external product technology acquisition and product performance measures (and not for financial performance measures), and between external process technology acquisition and finance performance measures (and not for product performance measures), as expected, and were both negative. In other words, the dimension of performance most hindered by external technology acquisition is precisely that dimension that managers might strategically target at a given stage in the technology life cycle. The availability of technical resources internal to the firm was in all cases positively associated with product, market and financial performance measures.These results taken together suggest that firm performance is negatively impacted by external technology acquisition, firms with internally available resources typically do not tend to seek external technology, and when they do, in some cases the negative relationship between external sourcing and performance is increased. Clearly, external technology acquisition is not a panacea and great care must be taken to ensure firm success—and our findings suggest that all else equal, firms may want to err on the side of internal development.     

Do Mature Firms Gain Higher Economic Value from R&D Investment?

Despite the significance of economic value indicators in the measurement of firm value, not much attention has been dedicated to how research and development (R&D) influences firms’ economic value. This study examines the relationship between R&D investments and firms’ economic value and considers the moderating role of age in the relationship using a dataset from manufacturing and information and technology firms in China. The results show that R&D investments impact firms’ economic value positively. This suggests that firms that invest in R&D are rewarded with a monopoly, which increases their market shares, thereby increasing economic value. Again, we find that older firms increase their economic value more than younger ones when they both invest in R&D. Thus, younger firms in China suffer from the liability of newness when they invest in R&D. It is recommended that these younger firms should strive to shorten the time to reap the returns from R&D investments.