R&D Sourcing, Joint Ventures and Innovation: A Multiple Indicators Approach

Abstract

This paper reexamines the limits of the firm in Research and Development (R&D). Using evidence drawn from industrial laboratories we study the causes and effects of R&D sourcing. We begin with the causes of sourcing, finding that Research Joint Ventures (RJVs), the option to purchase and acquire, and research with federal government contribute to sourced R&D. We then consider the effects of sourcing, RJVs, and the firm's internal research on innovation, as defined by patents and new products. Our results are that sourcing has little effect on innovation, but that RJVs and internal research increase innovation. This suggests specialization: cost saving is the primary motivation for sourcing, while innovation is the primary motivation for RJVs and internal research. Therefore, shared R&D comes in several varieties: R&D sourcing is not concerned with innovation, but consistent with their purpose, RJVs are instrumental in jointly commercializing the research of different firms.