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The Importance of Research and Development for Innovation in Small and Large Canadian Manufacturing Firms

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  • Baldwin, John R.

Abstract

The debate over the appropriate function of government policy for research and development (R&D) subsidies brings into focus the different roles that are played by large and small firms in the innovation process. Small firms, it is often claimed, have different tendencies to use R&D facilities than large firms and, therefore, require the development of special programs that are directed at this sector. This paper examines the differences in the innovation profiles of small and large firms, and how R&D intensity and efficacy varies across different size classes. It investigates the contribution that R&D makes to success in the small and medium-sized population and the types of policies that small firms feel are the most appropriate to reduce the impediments to innovation that they face. The paper finds a number of differences between large and small firms in the tendency to innovate and to use R&D facilities. Small firms can be divided into two groups. The first group consists of firms that resemble large firms in that they perform R&D and generate new products and processes primarily through their own efforts. The second are those who rely upon customers and suppliers for their sources of ideas for innovation. Large firms, by way of contrast, tend to rely more heavily on R&D. While they too rely on networks for ideas, their networks focus more heavily on relationships with other firms that belong to the same firm. Most of the differences between small and large firms are explained by the fact that firms of different sizes specialize in different parts of the production process. Firms of different sizes serve different niches; they each have their own advantages. Small firms are more flexible but can suffer from cost disadvantages due to scale. They overcome their disadvantages by networking with their customers and by showing the same flexibility in their R&D process that they exhibit elsewhere. They rely less on dedicated R&D facilities and more on the flexible exploitation of R&D as opportunities arise. They also network with customers in order to adopt their suggestions for new innovations.

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Bibliographic Info

Paper provided by Statistics Canada, Analytical Studies Branch in its series Analytical Studies Branch Research Paper Series with number 1997107e.

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Date of creation: 17 Sep 1997
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Handle: RePEc:stc:stcp3e:1997107e

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Keywords: Business performance and ownership; Innovation; Manufacturing; Research and development; Science and technology; Small and medium-sized businesses;

References

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  1. Scherer, F. M., 1983. "The propensity to patent," International Journal of Industrial Organization, Elsevier, vol. 1(1), pages 107-128, March.
  2. Teece, David J, 1977. "Technology Transfer by Multinational Firms: The Resource Cost of Transferring Technological Know-how," Economic Journal, Royal Economic Society, vol. 87(346), pages 242-61, June.
  3. Baldwin, John & Picot, Garnett, 1995. " Employment Generation by Small Producers in the Canadian Manufacturing Sector," Small Business Economics, Springer, vol. 7(4), pages 317-31, August.
  4. Bruce Kogut & Udo Zander, 1993. "Knowledge of the Firm and the Evolutionary Theory of the Multinational Corporation," Journal of International Business Studies, Palgrave Macmillan, vol. 24(4), pages 625-645, December.
  5. Sabourin, David & Baldwin, John R. & Diverty, Brent, 1995. "Technology Use and Industrial Transformation: Empirical Perspectives," Analytical Studies Branch Research Paper Series 1995075e, Statistics Canada, Analytical Studies Branch.
  6. Kleinknecht, Alfred, 1987. "Measuring R&D in Small Firms: How Much Are We Missing?," Journal of Industrial Economics, Wiley Blackwell, vol. 36(2), pages 253-56, December.
  7. Acs, Zoltan J & Audretsch, David B, 1987. "Innovation, Market Structure, and Firm Size," The Review of Economics and Statistics, MIT Press, vol. 69(4), pages 567-74, November.
  8. Cohen, Wesley M & Klepper, Steven, 1996. "Firm Size and the Nature of Innovation within Industries: The Case of Process and Product R&D," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 232-43, May.
  9. Cohen, Wesley M & Klepper, Steven, 1996. "A Reprise of Size and R&D," Economic Journal, Royal Economic Society, vol. 106(437), pages 925-51, July.
  10. Soete, Luc L. G., 1979. "Firm size and inventive activity : The evidence reconsidered," European Economic Review, Elsevier, vol. 12(4), pages 319-340, October.
  11. Cohen, Wesley M & Klepper, Steven, 1992. " The Tradeoff between Firm Size and Diversity in the Pursuit of Technological Progress," Small Business Economics, Springer, vol. 4(1), pages 1-14, March.
  12. Cohen, Wesley M. & Levin, Richard C., 1989. "Empirical studies of innovation and market structure," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 18, pages 1059-1107 Elsevier.
  13. Rosenberg, Nathan, 1990. "Why do firms do basic research (with their own money)?," Research Policy, Elsevier, vol. 19(2), pages 165-174, April.
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Citations

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Cited by:
  1. van Moorsel, Daryl & Cranfield, John A.L. & Sparling, David, 2005. "Factors Affecting Biotechnology Innovation in Canada: Analysis of the 2001 Biotechnology Use and Development Survey," Working Papers 34121, University of Guelph, Department of Food, Agricultural and Resource Economics.
  2. Someshwar Rao & Jianmin Tang, 2004. "Competitiveness Challenges Facing Canadian Industries," Canadian Public Policy, University of Toronto Press, vol. 30(4), pages 365-380, December.
  3. María Rochina-Barrachina & Juan Mañez & Juan Sanchis-Llopis, 2010. "Process innovations and firm productivity growth," Small Business Economics, Springer, vol. 34(2), pages 147-166, February.
  4. Juan A. Mañez & María E. Rochina-Barrachina & Amparo Sanchis & Juan A. Sanchis, 2011. "On The Role Of Process Innovations On Smes Productivity Growth?," Working Papers 1125, Department of Applied Economics II, Universidad de Valencia.
  5. Sabourin, David & Baldwin, John R. & Hanel, Peter, 2000. "Determinants of Innovative Activity in Canadian Manufacturing Firms: The Role of Intellectual Property Rights," Analytical Studies Branch Research Paper Series 2000122e, Statistics Canada, Analytical Studies Branch.
  6. Rama, Ed & Sabourin, David & Baldwin, John R., 1999. "Growth of Advanced Technology Use in Canadian Manufacturing During the 1990's," Analytical Studies Branch Research Paper Series 1999105e, Statistics Canada, Analytical Studies Branch.
  7. Baldwin, John R., 1999. "A Portrait of Entrants and Exits," Analytical Studies Branch Research Paper Series 1999121e, Statistics Canada, Analytical Studies Branch.
  8. Gaudreault, Valerie & Baldwin, John R. & Gellatly, Guy, 2002. "Financing Innovation in New Small Firms: New Evidence from Canada," Analytical Studies Branch Research Paper Series 2002190e, Statistics Canada, Analytical Studies Branch.
  9. Baldwin, John R. & Gellatly, Guy, 1998. "Are There High-tech Industries or Only High-tech Firms? Evidence from New Technology-based Firms," Analytical Studies Branch Research Paper Series 1998120e, Statistics Canada, Analytical Studies Branch.
  10. Baldwin, John R. & Hanel, Peter, 2000. "Multinationals and the Canadian Innovation Process," Analytical Studies Branch Research Paper Series 2000151e, Statistics Canada, Analytical Studies Branch.
  11. Fu, Xiaolan & Yang, Qing Gong, 2009. "Exploring the cross-country gap in patenting: A Stochastic Frontier Approach," Research Policy, Elsevier, vol. 38(7), pages 1203-1213, September.
  12. Crespi, Gustavo & Tacsir, Ezequiel, 2011. "Effects of innovation on employment in Latin America," MPRA Paper 35429, University Library of Munich, Germany.
  13. Peters, Alice & Baldwin, John R., 2001. "Innovation and Connectivity: The Nature of Market Linkages and Innovation Networks in Canadian Manufacturing Industries," Analytical Studies Branch Research Paper Series 2001165e, Statistics Canada, Analytical Studies Branch.
  14. Beckstead, Desmond & Baldwin, John R. & Gellatly, Guy, 2005. "Canada's Investments in Science and Innovation: Is the Existing Concept of Research and Development Sufficient?," Economic Analysis (EA) Research Paper Series 2005032e, Statistics Canada, Analytical Studies Branch.
  15. Sabourin, David & Baldwin, John R., 1999. "Innovative Activity in Canadian Food Processing Establishments: the Importance of Engineering Practices," Analytical Studies Branch Research Paper Series 1999101e, Statistics Canada, Analytical Studies Branch.
  16. Baldwin, John R. & Yates, Janice, 1999. "Innovation, Training and Success," Analytical Studies Branch Research Paper Series 1999137e, Statistics Canada, Analytical Studies Branch.
  17. Gellatly, Guy & Peters, Valerie, 2000. "Understanding the Innovation Process: Innovation in Dynamic Service Industries," Analytical Studies Branch Research Paper Series 2000127e, Statistics Canada, Analytical Studies Branch.
  18. Ahmed Abdel-Maksoud & Wagdy Abdallah & Mayada Youssef, 2012. "An empirical study of the influence of intensity of competition on the deployment of contemporary management accounting practices and managerial techniques in Egyptian firms," Journal of Economic and Administrative Sciences, Emerald Group Publishing, vol. 28(2), pages 84-97, August.

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