Is there complementarity or substitutability between internal and external R&D strategies?

John Hagedoorn and Ning Wang

Research Policy, 2012, vol. 41, issue 6, 1072-1083

Abstract: The various strands of extant empirical research are inconclusive about the complementarity or substitutability between different innovation mechanisms, such as internal and external R&D. Using a panel sample of 83 incumbent pharmaceutical firms covering the period 1986–2000, our empirical analysis suggests that, instead of a clear-cut answer to the question of whether internal and external R&D are complementary or substitutive innovation activities, there appears to be a contingent relationship between internal and external R&D strategies in shaping a firm's innovative output. The results from our study indicate that the level of in-house R&D investments, which is characterized by decreasing marginal returns, is a contingency variable that critically influences the association between internal and external R&D strategies. In particular, internal R&D and external R&D, through either R&D alliances or R&D acquisitions, are complementary innovation activities at higher levels of in-house R&D investments, whereas at lower levels of in-house R&D efforts, internal and external R&D turn out to be substitutive strategic options.

Keywords: Complementarity; Substitutability; Internal R&D; External R&D; Innovative output; Pharmaceutical industry; Biotechnology patents (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (105)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:respol:v:41:y:2012:i:6:p:1072-1083

DOI: 10.1016/j.respol.2012.02.012

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