Knowledge, Innovation, and Profitability: An Empirical Analysis in Knowledge Intensive Firms

Introduction

The Resource-based view of the firm (RBV) remarks the relevance of the generation and transfer of knowledge in the firms as a core resource to gain innovation and, as a result of innovation, to obtain also competitive advantage and a superior value and profits (Barney, 1991; Conner and Prahalad, 1996; Grant 1996; Kogut and Zander 1992; Nonaka, 1994; Penrose, 1959; Spender, 1996; Wernerfelt, 1984). Therefore, knowledge and innovation are seen as core factors of a vibrant economy, and also as keys to restore the economic growth (Cabrales, et al, 2009; Krugman, 2012, Schumpeter, 1939). As a consequence, in this situation innovation has a relevant role because when firms develop a successful innovation they get something unique that its competitors lack, and also build sustainable competitive advantages and profits.

This context led to pay attention to knowledge-intensive firms and their links with innovation, as a way to get superior value and increase economic growth and society welfare. In particular, the objective of this chapter is identifying the profile of knowledge-intensive firms, analysing if their innovation activity is a characteristic related with their profitability. The reasons that have motivated this study are the following: the relevance of innovation to all sectors of the economy because firms have to face new global challenges and, therefore, develop more efficient research and innovation policies; the importance of the innovation activity to the firms’ competitiveness and to the growth of economies; and the significance of establishing a typology and characterisation of R&D systems (Barney, 1991; Berchicci, 2013; Buesa et al., 2006; Hill & Jones, 2008; Lome et al, 2016; Lazzarini, S.G., 2015; Potočnik, 2009; Roxas et al, 2014; Schumpeter, 1939; Tzokas et al, 2015).

The author conducts the contrast of this research in a sample of biotechnology companies. There are reasons to selected this kind of firms. First, it is a sample of inherently knowledge intensive firms and therefore, they are suitable to analyse the relationship between innovation and profitability. Also, because the potential of the biotechnology industry in the innovation process has been recognised in industrialized countries whose governments have endorsed the transfer of technical and scientific knowledge from laboratories to firms (Barney, 1991; Gottweis, 1998; Hill & Jones, 2008; Schumpeter, 1939; Wright, 1994). The sample used was drawn from SABI database owned by Bureau van Dijk that contains comprehensive information on companies in Spain and Portugal, such as financial statements, financial strength indicators, directors and contacts, original filings/images, detailed corporate structures or audit report. The author has compiled data available until 31st December 2013. Due to the lack of similar empirical and methodological previous researches to compare data and fieldwork, it has made the decision to focus the investigation on one country, therefore they have been selected Spanish firms that are classified in CNAE code 7211. CNAE is the National Classification of Economic Activities compiled according to the conditions set out in the Regulation NACE (statistical classifications of economic activities developed since 1970 in the European Union). The code 7211 groups the firms which activity is the experimental R&D in biotechnology.