Determinants and Consequences of R&D Strategy Selection

Introduction

In order to survive in the competitive scene that companies have faced in recent years and which is characterized by a high level of dynamism (Teece, 1998; López & García, 2005; Diaz et al., 2008), the continual renewal of competitive advantages through innovation (Cho and Pucik, 2005) and the development of new capabilities (Grant, 1996) has become necessary (Danneels, 2002; Branzei & Vertinsky, 2006). In this context, technology represents one of the most important factors in increasing the national and international competitiveness of firms, while successful technological innovation in new products and processes is gradually more regarded as being the central issue in economic development (Porter, 1998). Moreover, as highlighted by Shrivastava and Souder (1987) and Bone and Saxon (2000), a key element in the competitive business strategy is the combination of technological innovation and R&D activities.

Since the objective of R&D strategies (RDSs) is to guide the firm in acquiring, developing and applying technology in order to generate sustainable competitive advantages (Swan & Allred, 2003), it is extremely important for the firm to select the best way of achieving the technology needed (Clarke et al., 1995). It is emphasized in the literature that firms establish their boundaries based on the decision regarding the type of R&D activities – whether they should be integrated within the company or not. In fact, Williamson (1975) identified a dichotonomous decision between make (internal) and buy (external) RDS; later on, Veugelers and Cassiman (2006) added a third, complementary one, make-buy RDS¹.

The effect of these RDSs over firms’ innovative results has been thoroughly studied; however, there is no general conclusion except that all of them are, in a way, highly significant in a firm’s innovative impetus. Explicitly, Diaz et al. (2008) find that the three RDSs have a positive impact, while Veugelers and Cassiman (2006) suggest that only make-buy yields the best results, whereas buy has the lowest ones. Even more, most of the research studies carried out in this field of investigation focus on the choice between make and buy strategies, the attention towards a make-buy one or to the reasons behind the selection of one strategy as opposed to another being almost inexistent (e.g., Veugelers & Cassiman, 1999).

When referring to the make RDS, firms understand a sole source of knowledge and, thus, important sources of competitive advantages achieved with high costs whose results cannot be clearly foreseen. The buy strategy, on the other hand, is a relatively low-cost one with more predictable results, offering solutions to some problems related to a lack of capacity. However, it does not stand for competitive advantages since there is a high probability that competitors attain it as well. As for the combination between them, the make-buy strategy, it enhances both the advantages and disadvantages of make and buy RDSs, being extremely complex to manage it.

Taking this into consideration, this study has a two-fold focus. Firstly, it aims at finding the determinants of the innovation strategy selection and, secondly, it has the objective of understanding which of the RDSs produce the best results in term of firm’s innovative performance. In order to reach this objective, data from the Technological Innovation Panel (PITEC) provided by the National Statistics Institute from Spain are analyzed, precisely the period 2004-2007.