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Transaction costs and capabilities as determinants of the R&D boundaries of the firm: a case study of the ten largest pharmaceutical firms in Japan


  • Masao Nakamura

    (Faculty of Commerce, Institute of Asian Research and Faculty of Applied Science, University of British Columbia, 2053 Main Mall, Vancouver, BC, Canada, V6 T 1Z2)

  • Hiroyuki Odagiri


The boundaries of the firm are an important issue in relation not just with the make-or-buy decision in production but also with research and development (R&D). Firms depend on universities to gain scientific knowledge, outsource some of their R&D works, purchase patented technologies, commission research, and participate in consortia. In this paper, we take the case of the 10 major pharmaceutical companies in Japan and show that they employ various types of research alliances with various partners, domestic or foreign. Two major theories to explain the boundaries, the transaction-cost theory and the capability theory, are discussed and we argue that the observed pattern of research alliance is more consistent with the capability theory. Discussion is also made on the consortia and national projects these firms participate. Copyright © 2003 John Wiley & Sons, Ltd.

Suggested Citation

  • Masao Nakamura & Hiroyuki Odagiri, 2003. "Transaction costs and capabilities as determinants of the R&D boundaries of the firm: a case study of the ten largest pharmaceutical firms in Japan," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 24(2-3), pages 187-211.
  • Handle: RePEc:wly:mgtdec:v:24:y:2003:i:2-3:p:187-211 DOI: 10.1002/mde.1083

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    References listed on IDEAS

    1. Philippe Aghion & Jean Tirole, 1994. "The Management of Innovation," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 1185-1209.
    2. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    3. Aghion, P. & Tirole, J., 1993. "On the Management of Innovation," Working papers 93-12, Massachusetts Institute of Technology (MIT), Department of Economics.
    4. Odagiri, Hiroyuki & Nakamura, Yoshiaki & Shibuya, Minoru, 1997. "Research consortia as a vehicle for basic research: The case of a fifth generation computer project in Japan," Research Policy, Elsevier, vol. 26(2), pages 191-207, May.
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    Cited by:

    1. Tsutomu Shibata, 2006. "Japan, Moving Toward a More Advanced Knowledge Economy : Volume 1. Assessment and Lessons," World Bank Publications, The World Bank, number 7081, June.
    2. Spithoven, André & Teirlinck, Peter, 2015. "Internal capabilities, network resources and appropriation mechanisms as determinants of R&D outsourcing," Research Policy, Elsevier, vol. 44(3), pages 711-725.
    3. Sharda, Kirti, 2011. "Back to the Drawing Board: Exploring Gestalts of Work Design in BPO Firms," IIMA Working Papers WP2011-02-04, Indian Institute of Management Ahmedabad, Research and Publication Department.
    4. Steven Globerman & Aidan Vining, 2004. "The Outsourcing Decision: A Strategic Framework," International Trade 0404007, EconWPA.
    5. Baldwin, John R. & Beckstead, Desmond & 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.
    6. Iwasa, Tomoko & Odagiri, Hiroyuki, 2004. "Overseas R&D, knowledge sourcing, and patenting: an empirical study of Japanese R&D investment in the US," Research Policy, Elsevier, vol. 33(5), pages 807-828, July.
    7. Clark Derek J & Pereau Jean-Christophe, 2008. "Passing the Buck in Sequential Negotiation," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 8(1), pages 1-18, December.
    8. Hwan Jin Kim, 2016. "The Comparative Effects of Transaction Cost Economics and Resource Based View: A Technological Alliance Motivational Perspective," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 6(5), pages 64-75, May.
    9. Berbegal-Mirabent, Jasmina & Llopis-Albert, Carlos, 2016. "Applications of fuzzy logic for determining the driving forces in collaborative research contracts," Journal of Business Research, Elsevier, vol. 69(4), pages 1446-1451.
    10. Masatoshi Kato, 2016. "Internal R&D and External Knowledge Acquisition of Start-up Firms: Exploring the Role of Entrepreneurial Human Capital," Discussion Paper Series 145, School of Economics, Kwansei Gakuin University, revised Jul 2016.

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