Complementarity between Technology Make and Buy in Innovation Strategies: Evidence from Belgium Manufacturing Firms

Universitat Pompeu Fabra Economics WP No. 279

Posted: 20 Jul 1998

See all articles by Bruno Cassiman

Bruno Cassiman

IESE Business School; KU Leuven - Faculty of Business and Economics (FEB)

Reinhilde Veugelers

Catholic University of Leuven (KUL) - Department of Applied Economics; Centre for Economic Policy Research (CEPR)

Abstract

This paper characterizes the innovation strategy of manufacturing firms and examines the relation between the innovation strategy and important industry-, firm- and innovation-specific characteristics using Belgian data from the Eurostat Community Innovation Survey. In addition to important size effects explaining innovation, we find that high perceived risks and costs and low appropriability of innovations do not discourage innovation, but rather determine how the innovation sourcing strategy is chosen. With respect to the determinants of the decision of the innovative firm to produce technology itself (Make) or to source technology externally (Buy), we find that small firms are more likely to restrict their innovation strategy to an exclusive make or buy strategy, while large firms are more likely to combine both internal and external knowledge acquisition in their innovation strategy. An interesting result that highlights the complementary nature of the Make and Buy decisions is that, controlled for firm size, companies for which internal information is an important source for innovation are more likely to combine internal and external sources of technology. We find this to be evidence of the fact that in-house R&D generates the necessary absorptive capacity to profit from external knowledge acquisition. Also the effectiveness of different mechanisms to appropriate the benefits of innovations and the internal organizational resistance against change are important determinants of the firm's technology sourcing strategy.

JEL Classification: L22, O32

Suggested Citation

Cassiman, Bruno and Veugelers, Reinhilde, Complementarity between Technology Make and Buy in Innovation Strategies: Evidence from Belgium Manufacturing Firms. Universitat Pompeu Fabra Economics WP No. 279. Available at SSRN: https://ssrn.com/abstract=88079

Bruno Cassiman (Contact Author)

IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain
+34 93 602 4426 (Phone)
+34 93 253 4343 (Fax)

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Reinhilde Veugelers

Catholic University of Leuven (KUL) - Department of Applied Economics ( email )

Leuven, B-3000
Belgium
+32 16 32 6908 (Phone)
+32 16 32 6732 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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