Choosing governance modes for external technology sourcing

Abstract

This study examines the effect of uncertainty on governance mode choice of interfirm relationships in new business development (NBD). We combine transaction cost economics and real options reasoning , arguing that in the early stages of NBD, where technological and market uncertainty are very high, companies are better off using governance modes that are reversible and involve a low level of commitment. When uncertainty has decreased as a result of prior R&D investments, transaction costs considerations become dominant and companies will shift towards governance modes that are less reversible and more hierarchical. We argue that technological distance leads to less hierarchical governance modes and prior cooperation between firms leads to subsequent choices for more hierarchical modes. Finally, we propose that higher exogenous uncertainty leads to less hierarchical governance modes.

External technology sourcing: The effect of uncertainty on governance mode choice

“…Instead, it is better to first build familiarity through small, educational investments or through alliances or joint ventures (Roberts and Berry, 1985). In this way, the investing company creates an option while learning about the opportunity ahead ( Van de Vrande et al, 2006). When the knowledge bases are more converged, a higher level of integration becomes more attractive.…”

“…When the environment is turbulent, it becomes more valuable for innovating firms to keep their options open. Hence, they will prefer to maximize flexibility in this stage while uncertainty decreases and a possible follow-on investment can be decided upon ( Van de Vrande et al, 2006). Therefore, under these circumstances, innovating firms will typically choose for less integrated governance modes with a lower level of financial commitment to reduce the potential costs associated with environmental turbulence in general and technology changes in particular (Sutcliffe and Zaheer, 1998).…”

Linking forms of inbound open innovation to a driver-based typology of environmental innovation: Evidence from French manufacturing firms

“…When a firm is motivated by both drivers, it recognizes the strategic importance of the EI and relies on collaborative learning, investing specific assets to safeguard the results of its cooperation. In addition, R&D cooperation, which demands a high level of investment, is coupled with the direct acquisition of technologies, because it enables the firm to diversify risks and costs and complement the knowledge generation it has gained through its R&D cooperation (van de Vrande et al, 2006).…”

Service innovation in Indian knowledge-intensive business services: the Wipro case

“…The acquisition of external knowledge relies on the firm's diverse strategies which have positive effect and challenges of management, hence innovation performance can be a consequence of how external knowledge can be acquired and differentiated (Faems et al, 2005;Van de Vrande et al, 2006). Hence we can summarise that the internal knowledge of a firm relies on the acquisition of external knowledge, and external knowledge is as important as internal knowledge.…”