Academic journal article Multinational Business Review

International Evidence on R&D Services Outsourcing Practices by Technological Firms

Academic journal article Multinational Business Review

International Evidence on R&D Services Outsourcing Practices by Technological Firms

Article excerpt

Introduction

During the past decades, the odds of finding a specialized provider for virtually every activity have increased. In effect, the processes of both economic integration and liberalization of international trade, together with the formation of new organizational systems based on information technologies, have allowed firms to specialize in activities for which there did not previously exist a market and ones that were performed internally by the firm. For this reason, the decisions related to vertical integration (i.e. what activities should be kept inside the firm and which ones are better outsourced) are increasingly of a more strategic character as the possibilities of outsourcing reach practically every area within the firm (Linares-Navarro et al. , 2014; Quélin and Duhamel, 2003; Verwaal et al. , 2008).

Even though increased disintegration and outsourcing of firms' production activities is not a novelty phenomenon - and it has been widely analyzed in the literature (Arruñada and Vázquez, 2006; Kotabe and Murray, 2004) - it is that this disintegration of the firms' value chain has reached the field of R&D management (Ouyang, 2008). Traditionally, it has been suggested that R&D-intensive firms should not outsource R&D, as these activities are expected to be core to their competitive strategy and to generate high transaction costs (Pisano, 1990; Williamson, 1985). However, according to the internalization theory in knowledge-intensive industries, gains from internalization of tacit and non-patentable knowledge are higher (Buckley and Casson, 1976, 2009; Rugman, 1981; Rugman et al. , 2011), and competitive pressures to build a larger and broader portfolio of related products have led technological firms to rely on external suppliers to organize some R&D services (Leiblein and Miller, 2003; Martínez-Noya and García-Canal, 2011; Mol, 2005; Narula, 2001; Nicholls-Nixon and Woo, 2003; Quinn, 2000). By doing so, they can concentrate on those parts of the process in which they can exploit their competitive advantage. Therefore, through outsourcing, or other forms of non-equity agreements, these firms have found a way not only to be more efficient or flexible but also to access the distinctive capabilities of a specialized partner (Graf and Mudambi, 2005; Hätönen, 2009; Narula and Duysters, 2004). For this reason, when making decisions of R&D outsourcing, it is as important to analyze what is being outsourced, as well as who is outsourcing these activities, considering that the universe of potential providers reaches nearly the whole world (Friedman, 2005). This fact has implied that, nowadays, to manage R&D, firms have established a global network of inter-firm agreements not only with providers located in developed countries but also in developing ones (Bunyaratavej et al. , 2007; Doh, 2005; Kedia and Mukherjee, 2009; Kotabe and Mudambi, 2009; Lewin et al. , 2009; Martínez-Noya et al. , 2012). Some examples of this new phenomenon of the twenty-first century are: the increasing number of pharmaceutical firms that are establishing R&D alliances with biotechnological firms located in India (UNCTAD, 2005); and the fact that Taiwan is attracting outsourcing agreements of the whole process of product design in the electronic sector (Engardio and Einhorn, 2005).

However, despite the relevance and interest of this phenomenon, there is a lack of empirical evidence to analyze the real magnitude and scope of this R&D offshore outsourcing process at the transactional level (i.e. without taking the R&D function as a whole). For this reason, in this paper, we present the results that we obtained from an international survey for technology-intensive firms from both the European Union (EU) and the USA on R&D outsourcing. Through the disintegration of the innovation process, we attempt to contribute to the literature by analyzing some of the distinctive features of this phenomenon, such as:

Who is outsourcing R&D? …

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