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Is there complementarity or substitutability between internal and external R&D strategies?

  • Hagedoorn, John
  • Wang, Ning
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    The various strands of extant empirical research are inconclusive about the complementarity or substitutability between different innovation mechanisms, such as internal and external R&D. Using a panel sample of 83 incumbent pharmaceutical firms covering the period 1986–2000, our empirical analysis suggests that, instead of a clear-cut answer to the question of whether internal and external R&D are complementary or substitutive innovation activities, there appears to be a contingent relationship between internal and external R&D strategies in shaping a firm's innovative output. The results from our study indicate that the level of in-house R&D investments, which is characterized by decreasing marginal returns, is a contingency variable that critically influences the association 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, are 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 turn out to be substitutive strategic options.

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    Article provided by Elsevier in its journal Research Policy.

    Volume (Year): 41 (2012)
    Issue (Month): 6 ()
    Pages: 1072-1083

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    Handle: RePEc:eee:respol:v:41:y:2012:i:6:p:1072-1083
    Contact details of provider: Web page: http://www.elsevier.com/locate/respol

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