Chapter 2: Literature review
2.1 The theoretical perspectives of R&D cooperation
Given the wide range of R&D cooperation activities, there are different kinds of definitions for R&D cooperation in academia. The synonyms of R&D cooperation used in research include R&D collaboration, research partnership, R&D consortia, R&D joint venture, R&D alliance, R&D strategic alliance, R&D cooperative or collaborative agreement, etc. For examples, research partnership is an innovation-based relationship that involves a significant effort in R&D (Hagedoorn, Link, and Vonortas 2000). R&D agreement is an agreement that regulates R&D sharing and/or transferring between two or more parent companies (Harabi 1998).
Siegel (2003) defines strategic research partnership as a cooperative relationship involving organizations that conduct or sponsor R&D, in which there is a two-directional flow of knowledge between the partners. According to Teece (1992), R&D strategic alliance is an agreement characterized by the commitment of two or more firms to reach R&D goals entailing the pooling of their resources and activities.
According to prior researchers’ viewpoints, I define R&D cooperation as a cooperative relationship involving two or more organizations that pool their resources and activities to reach an R&D goal. I summarize different definitions of R&D cooperation by prior researchers as follows:
Table 1: The definitions of R&D cooperation The synonyms of
R&D cooperation
Definition Author (year)
R&D
Collaboration
The process of working together with competitors for R&D.
Gibson and Rogers (1994)
Cooperative arrangements engaging companies, universities, and government agencies and laboratories in various
combinations to pool resources in pursuit of a shared R&D objective.
Council on
Competitiveness (1996) Research
partnership
An innovation-based relationship that involves a significant effort in R&D.
Hagedoorn et al. (2000)
R&D partnership The specific set of different modes of inter-firm collaboration where two or more firms that remain independent economic agents and organizations share some of their R&D activities.
Hagedoorn (2002)
R&D consortia R&D consortia are self-governing, usually nonprofit organizations run for the benefit of their members. The owners are the customers, and their purpose is to develop new
technology and put it into practice.
Corey (1997)
R&D joint venture
R&D joint ventures are operations whereby a legally independent and autonomously managed business enterprise is set up by two or more parent companies to run a clearly defined set of R&D activities in the common interest of the founding firms.
Harabi (1998)
R&D agreements R&D agreements cover agreements that regulate R&D sharing and/or transfer between
Harabi (1998)
Cooperative agreements
Common interests between industrial partners that are not connected through ownership.
Hagedoorn et al. (2000)
Strategic research partnerships are primarily entered into by high-technology alliance members to exercise an ‘option’ to acquire first mover advantage resulting from the emergence of a potential dominant design technology or process innovation.
Hemphill and Vonortas (2003)
Strategic research partnership
A cooperative relationship involving
organizations that conduct or sponsor R&D, in which there is a two-directional flow of knowledge between the partners. The implication is that there is a mutually beneficial transfer of knowledge that, in theory, enables all of the partners to achieve a strategic objective.
Siegel (2003)
Agreements characterized by the commitment of two or more firms to reach R&D goals entailing the pooling of their resources and activities.
Teece (1992) R&D strategic
alliance
Strategic alliances embrace a diversity of collaborative forms. The activities covered include supplier-buyer partnerships, outsourcing agreements, technical
collaboration, joint research projects, shared new product development, shared
manufacturing arrangements, common distribution agreements, cross-selling arrangements, and franchising.
Grant and Baden-Fuller (2004)
2.1.2 The classification of R&D cooperation
R&D cooperation can come from either the public sector (e.g. universities and government agencies) or the private sector (e.g. companies). R&D cooperation can also be formal, as expressed in an official pact between the two units detailing the scope and nature of the cooperation; or informal, in which one individual exchanges information with another individual over a period of time without any written or official authorization to do so (Gibson and Rogers. 1994; Hagedoorn et al. 2000).
R&D cooperation is an example of formal cooperation. However, very little is known about informal R&D cooperation. The classification of R&D cooperation can also be described as nonexclusive, exclusive, or closed. Nonexclusive cooperation tends to focus on technology for both collective and selective8 products used by a broad membership. Exclusive cooperation also pursues selective technology, but it is organized to advance the interests of some specific group. Closed cooperation seeks to develop proprietary technology, often to enhance members’ market shares in inter-firm and or international competition. Unlike the products of nonexclusive and exclusive cooperation, the more widely proprietary technology is shared, the less its value to any individual cooperative partner (Corey 1997).
Finally, some R&D cooperation is structured horizontally to include firms at only one level of the industry (e.g. competitors). Others are organized vertically to bring together firms at different levels such as suppliers or customers. For example, IC design industry emphasizes system on chip (SOC). SOC is an idea of integrating all components of a computer or other electronic system into a single integrated circuit (chip). However, a single company cannot own all the techniques in the system, so it has to obtain techniques or complete a product together through cooperation with its competitors. Opposite to IC design industry, system assembling companies pay more attention to vertical cooperation. For example, notebook OEM companies, such as Quanta and Compal, emphasize cooperation between suppliers and customers. They
8 Collective products, such as technology for improving the quality of the environment or the development of an industry supply infrastructure, are available to all, consortia members and nonmembers alike. Selective products are R&D achievements made available to individual member firms for such purposes as advancing operations technology, training personnel, and developing new products; their benefits are not easily accessible to nonmembers. Proprietary technology is intended to be appropriable by member only, and is usually undertaken to gain some margin of competitive
have to cooperate with upstream computer component suppliers to insure the specification and yield rate of the components, and rely on the upstream computer component suppliers’ help to complete system design. Upstream firms also cooperate with downstream firms on R&D in order to establish a closed production relationship with downstream customers.9
In this paper, I focus on the influence of horizontal and vertical R&D cooperation, and only include formal cooperation in the private sector. Most of my research samples engage in closed cooperation, but still have some cases of open cooperation.
Table 2 summarizes the different classifications of R&D cooperation.
Table 2: The classifications of R&D cooperation
Classifications Description 1. Public vs. private sector
cooperation
R&D cooperation can come from either the public sector (e.g. universities and government agencies) or the private sector (e.g. companies).
2. Formal vs. informal cooperation
R&D cooperation can also be formal, as expressed in an official pact between the two units detailing the scope and nature of the cooperation; or informal, in which one individual exchanges information with another individual over a period of time without any written or official authorization to do so.
3. Open vs. closed cooperation
Nonexclusive cooperation tends to focus on technology for both collective and selective products used by a broad membership. Exclusive cooperation also pursues selective technology, but it is organized to advance the interests of some specific group. Closed cooperation seeks to develop proprietary technology, often to enhance members’ market shares in inter-firm and international competition.
4. Horizontal vs. vertical cooperation
R&D cooperation can be structured horizontally to include firms at only one level of the industry (e.g.
competitors). Others are organized vertically to bring together firms at different levels such as suppliers or customers. In addition, generalized cooperation (cooperating with supplier, customer, and competitors simultaneously) is also a widespread form of R&D cooperation.
2.1.3 The benefits of R&D cooperation
The economic reason for the formation of R&D cooperation is the anticipation of a greater benefit through R&D partners than any benefit arising if the partners were to undertake the same activities independently, that is, cost-benefit analyses (Corey 1997). Several types of potential benefits of R&D cooperation can be identified as follows. First, the cost of R&D continues to escalate, taking it beyond the point at which any one company could afford the requisite R&D investment. Therefore, cost sharing opportunities are prime motivators in the formation of consortia for the development of collective and selective R&D products in noncompetitive domains (Corey 1997). Learning from failures is also offered as a benefit of R&D consortia. If ten companies invest in a risky technology and it fails, then each company learns what not to do at one-tenth the cost (Gibson and Rogers 1994). Second, sharing complementary technical knowledge is often the purpose of consortia that are formed to develop proprietary technology to advance competitive advantage (Corey 1997).
Third, risk reduction opportunities provide an incentive for collaboration on large-scale projects with a relatively high degree of uncertainty. In addition, risk reduction can provide the opportunity to monitor technological advances in competitors’ R&D activities (Corey 1997). Fourth, synergy allows an R&D consortium with many researchers and resources to enjoy certain benefits that each of its member firms acting alone could not achieve (Gibson and Rogers 1994). By using coalitions, a firm can benefit from a broader scope of activities without spending precious resources to enter new market segments (Porter 1986). Choi (1993) also indicates that the benefits of research joint venture are as follows: pooling of risk and financial resources under market imperfections in capital market, complementary
coordination of research technology choices, etc. Table 3 summarizes the benefits of R&D cooperation.
Table 3: The benefits of R&D cooperation
Benefits Author (year)
Cost sharing opportunities are prime motivators in the formation of consortia for the
development of collective and selective R&D products in noncompetitive domains.
Corey (1997)
Benefits to MCC (Microelectronics and Computer Technology Corporation) included improved financing and access to low-cost manufacturing.
Gibson and Rogers (1994)
1. Cost sharing
Learning from failures is also offered as a benefit of R&D consortia. If ten companies invest in a risky technology and it fails, then each company learns what not to do at one-tenth the cost.
Gibson and Rogers (1994)
When companies share information completely the R&D process can be divided up into small bits so that the cost of duplicating fruitful and fruitless approaches is avoided.
Kamien, Muller, and Zang (1992).
2. Avoiding duplication R&D
Avoiding duplication of effort. Scotchmer (2005) Technology know-how for joint technology
development.
Gibson and Rogers (1994)
Sharing complementary technical knowledge is often the purpose of consortia that are formed to develop proprietary technology to advance competitive advantage.
Corey (1997) 3. Sharing
complementary technology
Sharing technical information that might be hidden if firms compete.
Scotchmer (2005)
Risk reduction opportunities provide an incentive for collaboration on large-scale projects with a relatively high degree of uncertainty.
Corey (1997)
Risk reduction can provide the opportunity to monitor technological advances in competitors’
R&D activities.
Corey (1997) 4. Risk reduction
A firm may decide to enter into a technology alliance that has significant technological or market uncertainties attached to it.
Hemphill and Vonortas (2003)
Coordination of research technology choices. Choi (1993) Synergy allows an R&D consortium with many
researchers and resources to enjoy certain benefits that each of its member firms acting alone could not achieve.
Gibson and Rogers (1994)
5. Synergy
Delegating effort to the more efficient firms. Scotchmer (2005) 2.1.4 Theoretical perspectives on R&D cooperation
There is a vast literature that attempts to explain, from a theoretical perspective, why firms engage in R&D cooperation and what are the results of such cooperation to the partners, industry, and society, respectively. Hagedoorn et al. (2000) distinguish three theoretical perspectives on R&D cooperation: transaction costs, strategic management, and industrial organization theory. First, transaction cost theory is used to explain why an R&D cooperation is formed. One must determine why participating organizations have a cost advantage over the market or a hierarchical organization form of operation for R&D activity (Hagedoorn et al. 2000). Technological transactions in the marketplace can have high transaction costs. Internal R&D limits these costs, but blocks the access to specialized resources in other firms. Through R&D cooperation, firms can get access to these specialized resources, while at the same time allowing for the transfer of technology and knowledge at lower transaction costs (Oerlemans and Meeus 2001).
Second, strategic management scholars use five approaches to discuss strategic technical alliances as below:
1. Competitive force: Cooperation is seen as a means of shaping competition by improving a firm’s comparative competitive position. By using coalitions, a firm can react swiftly to market needs and bring technology to the marketplace faster (Porter 1986).
2. Strategic network: The network is a new form of organization and strategy. Multiple cooperative relationships of a firm can be the source of its competitive strength. Strategic networks can achieve efficiency, synergy, and power (Hagedoorn et al. 2000).
3. Resource-Based View: The resources of sustained competitive advantage are firm resources that are valuable, rare, and not easily substitutable.
Access to external complementary resources may be necessary in order to fully exploit the existing resources and develop sustained competitive advantages (Teece 1986). Alliances, including R&D cooperation, can facilitate access.
4. Dynamic capabilities: Dynamic capabilities are defined as the firm’s ability to integrate, build, and reconfigure internal and external competence to address rapidly changing environments (Teece, Pisano, and Shuen 1997). Inter-firm cooperation can be viewed as a vehicle for organizational learning (Hamel and Prahalad 1989; Mody 1993) and for entering new technological areas (Dodgson 1991).
5. Strategic options to new technologies: This approach to explaining cooperation complements the dynamic capabilities approach by considering how managers can determine prospectively the set of resources and capabilities necessary for superior future performance in uncertain market environments (Sanchez 1993). Cooperation may assist companies to gain valuable experience and increase their exposure to related markets and their ability to sense and respond to new opportunities (Kogut 1991).
Third, industrial organization scholars have long been interested in the resource
models can essentially be categorized into two categories: non-tournament models and tournament models:
1. Non-tournament models: The vast majority of the theoretical work on cooperative R&D has followed the non-tournament approach (e.g.
D’Aspremont and Jacquemin 1988; Kamien et al. 1992; Atallah 2002;
Ishii 2004). The literature is replete with strategic, static, multistage models comparing the performance of cooperative and non-cooperative industrial setups in the presence of imperfectly appropriable, cost-reducing R&D. A consistent finding is that R&D competition seems better in the absence of knowledge spillovers, while R&D cooperation performs consistently better under the higher rate of knowledge spillovers.
The mathematical modeling of this study follows non-tournament approach.
2. Tournament models: Tournaments models emphasize the timing of innovation where the winner of an innovative race (often takes the forms of a patent race) earns the right to an exogenously or endogenously determined monopolistic return. The winner shares the available information with the loser means that partnership will not form unless it is subsidized. In addition, firms choose to cooperate fully when they undertake complementary R&D, while they share no information outside the partnership if they undertake substitutive R&D.
I summarize the theoretical perspectives on R&D cooperation as Table 4:
Table 4: Theoretical perspectives on R&D cooperation
Theory Categories 1. Transaction cost: Why
participating organizations have a cost advantage over the market or a
hierarchical organization form of operation for R&D activity.
Through R&D cooperation, firms can get access to the specialized resources of other firms, while at the same time allowing for the transfer of technology and knowledge at lower transaction costs than transactions through the market place (Oerlemans and Meeus 2001).
1. Competitive force: Cooperation is seen as a means of shaping competition by improving a firm’s comparative competitive position. By using coalitions, a firm can react swiftly to market needs and bring technology to the marketplace faster (Porter 1986).
2. Strategic network: Multiple cooperative relationships of a firm can be the source of its competitive strength. Strategic networks can achieve efficiency, synergy, and power (Hagedoorn et al 2000).
3. Resource-Based View: The resources of sustained competitive advantage are firm resources that are valuable, rare, and not easily substitutable. Access to external complementary
resources may be necessary in order to fully exploit the existing resources and develop sustained competitive advantages (Teece 1986). Alliances, including R&D cooperation, can facilitate access.
4. Dynamic capabilities: The primary focus is on the mechanisms by which firms accumulate and deploy new skills and
capabilities, and on the contextual factors that influence the rate and direction of this process. Inter-firm cooperation can be viewed as a vehicle for organizational learning (Hamel and Prahalad 1989; Mody 1993) and for entering new technological areas (Dodgson 1991).
2. Strategic management scholars: Five approaches are used to discuss
strategic technical alliances.
5. Strategic options to new technologies: This approach to explaining cooperation complements the dynamic capabilities approach by considering how managers can determine
prospectively the set of resources and capabilities necessary for superior future performance in uncertain market
environments (Sanchez 1993). Cooperation may assist companies to gain valuable experience and increase their exposure to related markets and their ability to sense and
1. Non-tournament models: The vast majority of the theoretical work on cooperative R&D has followed the non-tournament approach. Strategic, static, multistage models comparing the performance of cooperative and non-cooperative industrial setups in the presence of imperfectly appropriable,
cost-reducing R&D are abundant in the literature. A consistent finding is that R&D competition seems better in the absence of knowledge spillovers, while R&D cooperation performs consistently better under the higher rate of knowledge spillovers. The mathematical modeling of this study follows non-tournament approach.
3. Industrial organization:
Recent theoretical literature has depended heavily on game-theoretic tools and formal
mathematical modeling.
2. Tournament models: Tournaments models emphasize the timing of innovation where the winner of an innovative race earns the right to an exogenously or endogenously determined
monopolistic return. The winner shares the available
information with the loser means that partnership will not form unless it is subsidized. In addition, firms choose to cooperate fully when they undertake complementary R&D, while they share no information outside the partnership if they undertake substitutive R&D.