Firms’ choice between technological cooperation and outsourcing should take regional context into account, research finds

Networking strategies have a positive and significant impact on firms’ innovation performance. However, not all mechanisms generate the same returns. This is one of the reasons why firms should take the regional innovation context into account, according to a recent study co-authored by Rovira i Virgili University’s Damián Tojeiro-Rivero and UB School of Economics’ Rosina Moreno. The findings show that technological cooperation is more beneficial for firms located in a knowledge intensive region, whereas R&D outsourcing seems to be more profitable for companies in regions with a low knowledge pool.

The results have been published in the scientific journal Research Policy under the title Technological cooperation, R&D outsourcing, and innovation performance at the firm level: The role of the regional context. To carry out the analysis, the researchers used a panel of manufacturing enterprises in Spain starting from 2000 until 2012.

Both technological cooperation and R&D outsourcing allow firms to acquire knowledge beyond their boundaries. In doing so, companies become more innovative and avoid being locked in the internal structure and way of thinking. However, these strategies do not benefit equally from the regional context because each one presents different characteristics.

On the one hand, technological cooperation involves an interactive learning allowing a more tacit component in the introduction of external knowledge. This kind of knowledge is highly contextual, and hard to articulate in articles, patents, or books, is difficult to transfer and is better transmitted through face-to-face interactions. On the other hand, R&D outsourcing mainly involves codified knowledge, which can be purchased in markets for technology with little interaction with other agents. This knowledge may travel across the territory and across agents.

As a consequence, firms carrying out technological cooperation agreements as a way to introduce tacit knowledge will benefit from being located in a high knowledge region because local knowledge spillovers will allow the firm to further elaborate the external knowledge. In contrast, firms located in regions with low knowledge endowment will obtain higher returns to R&D outsourcing because they are less dependent on local knowledge spillovers and are less likely to experience negative knowledge spillovers coming from closely located competitors given the low amount of innovation taking place in the region.

The authors of the study also found that the benefits obtained from cooperation are higher in regions with higher research expenditures developed by private agents. In contrast, the R&D outsourcing strategy is more efficient in regions where the knowledge pool available is mainly due to public institutions. In the first case, the regional knowledge base makes technological cooperation more effective, whereas in the second case the public sector does imply further competition in terms of innovation for the firms that outsource part of their knowledge.

The researchers recommend that regions with a weak knowledge base redesign the local labour-training systems so that the programmes are strongly related to the requirements of the local industries which are starting to introduce R&D developed by other agents. This should also reduce labour outflows, which is a main handicap in policies of human capital carried out in less-developed regions. Another regional policy priority to enhance R&D outsourcing should be the promotion of university-industry linkages that would allow the firm to incorporate appropriately the knowledge outsourced from other firms.

All in all, the study underlines that the mechanisms to incorporate new knowledge into the firms need to fit with the requirements of the enterprise but also take into account the regional context. The authors warn that “policies used in an undifferentiated manner for all kinds of regions may be misleading”.

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