Paper #279

Title:

Complementarity between technology make and buy in innovation strategies: Evidence from Belgiam manufacturing firms

Authors:

Bruno Cassiman and Reinhilde Veugelers

Date:

February 1998

Abstract:

This paper characterizes the innovation strategy of manufacturing firms and examines the relation between the innovation strategy and important industry-, firm- and innovation-specific characteristics using Belgian data from the Eurostat Community Innovation Survey. In addition to important size effects explaining innovation, we find that high perceived risks and costs and low appropriability of innovations do not discourage innovation, but rather determine how the innovation sourcing strategy is chosen. With respect to the determinants of the decision of the innovative firm to produce technology itself (Make) or to source technology externally (Buy), we find that small firms are more likely restrict their innovation strategy to an exclusive make or buy strategy, while large firms are more likely to combine both internal and external knowledge acquisition in their innovation strategy. An interesting result that highlights the complementary nature of the Make and Buy decisions, is that, controlled for firm size, companies for which internal information is an important source for innovation are more likely to combine internal and external sources of technology. We find this to be evidence of the fact that in-house R&D generates the necessary absorptive capacity to profit from external knowledge acquisition. Also the effectiveness of different mechanisms to appropriate the benefits of innovations and the internal organizational resistance against change are important determinants of the firm's technology sourcing strategy.

Keywords:

Innovation, research and development, make or buy decision, complementarity

JEL codes:

L22, O32

Area of Research:

Labour, Public, Development and Health Economics

Published in:

Research Policy, 28, p.63-80, 1999

Download the paper in PDF format