Is there complementarity or substitutability between internal and external R&D strategies?
AbstractThe mixed picture of extant research on the relationship between internal and external R&D prompts us to ask such a question: under what conditions is there complementarity or substitutability between different R&D strategies? The goal of this paper is to contribute to the empirical literature by advancing and testing the contingency of the relationship between internal and external R&D strategies in shaping firms‘ innovative output. Using a panel sample of incumbent pharmaceutical firms covering the period 1986-2000, our empirical analysis suggests that the level of in-house R&D investments, which is characterized by decreasing marginal returns, is a contingency variable that critically influences the nature of the link between internal and external R&D strategies. In particular, internal R&D and external R&D, through either R&D alliances or R&D acquisitions, turn out to be complementary innovation activities at higher levels of in-house R&D investments, whereas at lower levels of in-house R&D efforts internal and external R&D are substitutive strategic options. These findings are robust to alternative specifications and estimation techniques, including a dynamic perspective on firm innovative performance.
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Bibliographic InfoPaper provided by United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology in its series UNU-MERIT Working Paper Series with number 005.
Date of creation: 2010
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Web page: http://www.merit.unu.edu
Complementarity; Substitutability; Internal R&D; External R&D; Innovative Output; Pharmaceutical Industry; Biotechnology;
Find related papers by JEL classification:
- O32 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Management of Technological Innovation and R&D
- L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-04-17 (All new papers)
- NEP-CSE-2010-04-17 (Economics of Strategic Management)
- NEP-INO-2010-04-17 (Innovation)
- NEP-IPR-2010-04-17 (Intellectual Property Rights)
- NEP-SBM-2010-04-17 (Small Business Management)
- NEP-TID-2010-04-17 (Technology & Industrial Dynamics)
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