External technology sourcing and innovation performance in LMT sectors: An analysis based on the Taiwanese Technological Innovation Survey
Introduction
With rapidly changing and complex technology, external technology acquisition has become an important component of a firm’s technology strategy and supports its competitive advantage and positioning (Zahra et al., 1994). By acquiring technologies from outside sources, firms can better cope with the increasing speed, cost, and complexity of technological developments (Vanhaverbeke et al., 2002). This practice can expand a firm’s technological capacity, thereby creating sustainable performance differentials with rivals (Henderson and Cockburn, 1996, Montoya et al., 2007). Many firms, even the largest companies, are relying more extensively on external sources in their innovation management practices. Given the increasing importance of innovation as a major organizational competitive weapon, numerous academic studies have examined the issues pertaining to technology acquisition and development.
Most existing literature on external technology sourcing concentrates on influential aspects of acquisition (e.g. Hemmert, 2004, Jones et al., 2001, Yoshikawa, 2003, Zahra et al., 2005) and on the choice between internal and external sourcing (e.g. Narula, 2001; Veugelers, 1997, Veugelers and Cassiman, 1999). Some research also investigates external technology sourcing–performance relationships (Ahuja and Katila, 2001, Jones et al., 2001, Tsai and Wang, 2007, Vanhaverbeke et al., 2002). The strategies of acquiring externally developed technology investigated in the literature include mergers and acquisitions (M&As), technology acquisition through licensing contracts (inward licensing) or technologies embodied in equipment, and some (formal or informal) cooperative modes of R&D. However, most studies consider these strategies to be isolated issues. In other words, external technology sourcing and external technology sourcing–performance relationships are often explored under a different acquisition strategy or a combination of acquisition strategies. Some research explores the effects of collaborative networks on technological activities (e.g. Belderbos et al., 2004a, Faems et al., 2005, Nieto and Santamaría, 2007), ignoring the role of internal R&D efforts. While these studies center on so-called high-tech industries (such as IC, biotechnology and electronics), little academic research to date in this field has focused on low- and medium-technology (LMT) sectors. Although these sectors are not characterized by rapidly changing technology, technology issues are still important within these industries because they comprise the bulk of economic activity in a country and innovation can also be a competitive advantage weapon in LMT sectors.
This study fills a gap in the literature by investigating how LMT firms manage their development activities to generate innovation and by examining the impacts of external technology acquisition approaches on firm innovation performance. For this second issue in particular, few studies simultaneously examine the relationships between various technology development strategies and innovation performance in a conceptual framework (Amara and Landry, 2005, Kessler et al., 2000), even though the influence of important external technological knowledge sources on innovation has been documented in earlier research (e.g. Grant, 1996, Zahra and Nielsen, 2002). Research tends to emphasize the role of internal research and development in the utilization of external technological knowledge (Cohen and Levinthal, 1990, Gambardella, 1992, Mowery et al., 1996); however, its moderating effect on the relationship between external technology sourcing and innovation performance is seldom examined. Investigating this topic is important because it is relevant to both established and start-up firms in which resource limitations constrain technology sourcing strategies.
To a firm, external technology acquisition means incorporating existing external technological knowledge. Organizational learning can also be viewed as the most important vehicle for knowledge accumulation and competence development (Drejer, 2000). Knowledge is the pivotal resource in the knowledge-based view of the firm (Foss, 1996, Grant, 1996). This study adopts the knowledge-based view to examine the external technology strategy–performance relationship for Taiwanese firms. Because the Taiwanese economy is predominantly comprised of SMEs, the Taiwanese Technological Innovation Survey (TTIS) database (which is described further in Section 3.2) is useful for this analysis. Furthermore, the results of this analysis can provide some insights on firms with limited resources, since extant research suggests that external technology issues are particularly relevant to these firms (e.g. Veugelers, 1997, Zahra, 1996).
The remainder of this paper is organized as follows. Section 2 addresses theoretical viewpoints and predictions. Section 3 introduces research methods, including the model, variable definitions and measurements, and the data adopted in this study. Section 4 reports results and offers some discussion, while Section 5 summarizes the results and discusses their implications for existing theoretical perspectives, managerial practice, and directions for future research.
Section snippets
Literature review and theoretical background
According to the knowledge-based view, a firm gains a competitive advantage by exploring, exploiting, and integrating different specialized knowledge areas through internal R&D activities and external technology sourcing (Grant, 1996). Focusing on in-house R&D activities allows a firm to develop its core technological capabilities and experience higher economic returns while allowing for better control and tacit knowledge understanding embedded in the development process (Chesbrough and Teece,
The model
Based on theoretical expectations regarding innovation performance and external technology sourcing, the following model is used in this paper to explain a firm’s technological innovation performance:
The dependent variable INN is technological innovation performance. This study defines INN as a firms’ turnover attributable to technologically
Results
The models in this study are estimated by OLS-based hierarchical regression. Model 1 contains control variables including industry dummies (IND1–IND7), firm size, human quality, and a multinationality dummy (CM), followed by internal R&D investment (INR), R&D outsourcing (OUR), inward technology licensing, and the collaboration variables (CPS, CPC, CPM, and CPR) in Model 2. Model 3 adds interaction terms between external technology sourcing variables and an internal R&D investment variable.
Summary and implications
This study presents interesting findings based on a sample of LMT firms. First, although inward technology licensing has been widely adopted by LMT firms to acquire external technology, this strategy does not significantly enhance a firm’s innovation performance. Second, matching greater internal R&D investment with a lower level of R&D outsourcing contributes to a firm’s technological innovation performance. Third, the impact of different types of partners on technological innovation
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