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Research Policy
j ou rn a l h om ep a g e :w w w . e l s e v i e r . c o m / l o c a t e / r e s p o l
The paradox of openness: Appropriability, external search and collaboration 夽
Keld Laursen
a,b,∗, Ammon J. Salter
c,1aDRUID,DepartmentofInnovationandOrganizationalEconomics,CopenhagenBusinessSchool,Kilevej14A,2000Frederiksberg,Denmark
bCenterforServiceInnovation,DepartmentofStrategyandManagement,NorwegianSchoolofEconomicsandBusinessAdministration,Breiviksveien40, N-5045Bergen,Norway
cSchoolofManagement,UniversityofBath,ClavertonDown,BathBA27AY,UnitedKingdom
a r t i c l e i n f o
Articlehistory:
Received23September2012
Receivedinrevisedform13October2013 Accepted14October2013
Availableonline27November2013
Keywords:
Appropriabilitystrategy Innovation
Breadthofopenness Innovationcollaboration Competitorcollaboration
a b s t r a c t
Toinnovate,firmsoftenneedtodrawfrom,andcollaboratewith,alargenumberofactorsfromoutside theirorganization.Atthesametime,firmsneedalsotobefocusedoncapturingthereturnsfromtheir innovativeideas.Thisgivesrisetoaparadoxofopenness—thecreationofinnovationsoftenrequires openness,butthecommercializationofinnovationsrequiresprotection.Basedoneconometricanalysis ofdatafromaUKinnovationsurvey,wefindaconcaverelationshipbetweenfirms’breadthofexternal searchandformalcollaborationforinnovation,andthestrengthofthefirms’appropriabilitystrategies.
Weshowthatthisconcaverelationshipisstrongerforbreadthofformalcollaborationthanforexternal search.Thereisalsopartialevidencesuggestingthattherelationshipislesspronouncedforbothexternal searchandformalcollaborationiffirmsdonotdrawideasfromorcollaboratewithcompetitors.We exploretheimplicationsofthesefindingsfortheliteratureonopeninnovationandinnovationstrategy.
©2013TheAuthors.PublishedbyElsevierB.V.Allrightsreserved.
1. Introduction
Thispaperexploreshowthechoicesoffirmstobeopentodif- ferentexternalactorsarerelatedtothechoicestheymakeabout theirappropriability strategy,that is, theirapproach toprotec- tingtheirknowledge againstbeingcopiedand toappropriating thereturnsfromtheirinnovativeactivities.Theinnovationprocess involvesresourceintensivesearchtofindcommerciallyexploitable newcombinationsofknowledgeortechnology(NelsonandWinter, 1982; Stuart and Podolny, 1996; Hargadon and Sutton, 1997;
FlemingandSorenson,2004;Laursen,2012).Thisrequiresorga- nizations toworkwithanddrawknowledge frommanyactors outsidetheirorganization(Shanetal.,1994;RosenkopfandNerkar, 2001;Katila,2002;LaursenandSalter,2006).Inordertorender theseeffortseffective,firmsneedtoaligntheirinternalprocesses totheexternalenvironment:theyneedtoconfiguretheirfirmto enablesuccessfulabsorptionofknowledgefromexternalsources
夽 Thisisanopen-accessarticledistributedunderthetermsoftheCreative CommonsAttributionLicense,whichpermitsunrestricteduse,distribution,and reproductioninanymedium,providedtheoriginalauthorandsourcearecredited.
∗ Correspondingauthorat:DepartmentofInnovationandOrganizationalEco- nomics,CopenhagenBusinessSchool,Kilevej14A,2000Frederiksberg,Denmark.
Tel.:+4538152565;fax:+4538152540.
E-mailaddresses:[email protected](K.Laursen),[email protected](A.J.Salter).
1 Tel.:+4401225386742;fax:+4401225386473.
(CohenandLevinthal,1990).Manyscholarshavesuggestedthat seekinghelpfromexternalactorsforinnovationisbecomingan importantpartofmanagerialstrategy,andarguethattheinnova- tionprocessisbecomingmoreopen,distributedanddemocratic (vonHippel,1988,2005;Chesbrough,2003;Coombsetal.,2003;
Chesbroughetal.,2006).
Research hasshown that firmsneedtoprotect theirknowl- edgewhentheyengageinformalexternalcollaboration(Cassiman andVeugelers,2002;HeimanandNickerson,2004),whichisone meansthatfirmscanusetoaccessskillsandknowledgenotavail- ablewithintheboundariesoftheirorganizations.Inthepresent studyweexploretwoaspectsoffirmopenness—thebreadthofthe firm’sinnovationsearchefforts,and therangeoftypesof part- nerorganizationsinformalcollaborationsforinnovation.In the caseofinnovativesearch,wefocusonthebreadthoffirms’exter- nalsearchstrategiesbylookingatthenumberofseparatesearch channels(sourcesofinnovation), suchassuppliers,users, com- petitors,researchorganizationsanduniversities,thatfirmsusein theirsearchforinnovativeopportunities,whichLaursenandSalter (2006),call“externalsearchbreadth”.Wealsoexaminethebreadth ofcollaborationwithsuppliers,customers,competitors,research organizationsand universities.Formal innovationenablesmore sustainedexchangesbetweenthefocalfirmanditsexternalenvi- ronment,butitrequiresgreatermanagerialefforttofindsuitable partners,agreeoncontractsandcoordinatejointefforts(Dyerand Singh,1998).
0048-7333/$–seefrontmatter©2013TheAuthors.PublishedbyElsevierB.V.Allrightsreserved.
http://dx.doi.org/10.1016/j.respol.2013.10.004
Thecurrentstudyhelpstoextendourknowledgeabouthow firms’opennesschoicesarelinkedtotheirneedtoprotecttheir knowledgein order toappropriatethe returnsfrominnovative activities. A major problem associated with accessing external sourcesofknowledgerelatestothefactthat,inordertoobtain knowledge,organizationshavetorevealsomepartsoftheirown knowledgetoexternalactors.Managersmaketheirfirm “open”
byengagingwitha broadsetofexternalactorsintheirinnova- tionactivities,butalsohavetoprotecttheirownfirm’sknowledge frombeingcopied bycompetitors. Thisrepresentsanapparent paradoxthat opennessmay demandmore attention toprotec- tion.ParaphrasingArrow(1962),wedescribethisastheparadox ofopenness.Appropriatingthebenefitsderivingfromaninnova- tionrequiresconsiderablemanagerialattentionandeffort,such asapplyingforpatents,establishingamarketleadtime,keeping keytechnologiessecretfromcompetitors,andgainingaccessto complementaryassets(Teece,1986;Aroraetal.,2001;Aroraand Ceccagnoli,2006;Teece,2002;Ziedonis,2004;Ceccagnoli,2009).
Followingtheopeninnovationliterature,wecontendthatthese effortshaveamajorinfluenceonthefirm’sapproachtotheexter- nalenvironmentinrelationtowhoitworkswith,whereitlooksfor ideas,andhowitorganizesitsowninnovativeactivities(Gansand Stern,2003;Chesbrough,2006;Somaya,2012).Byexploringthe relationbetweenthefirm’smanagerialchoicesoverappropriating thebenefitsfromtheirinnovationsanditsopennesstotheexternal environment,wehopetoadvancetheoryandpracticeonhowbest tomanagetheparadoxofopenness.
Wesuggestthatthefirm-levelstrengthofoverallappropriabil- itystrategyshowsaconcaverelationtotheopennessofexternal searchandcollaborationforinnovation.2Ourargumentsuggests thatappropriabilityandopennessgenerallygohand-in-hand,but thathighlevelsofappropriabilityareassociatedwithdecreasing levelsofopenness.Notethat,inthispaper,wedonotmakestrong claimsaboutcausality.It mightbethatastrongappropriability strategy (upto acertain point)allows moreopenness,alterna- tivelyitmightbethecasethatasfirmsbecomemoreopen,they needtofocusmoreonappropriability.However,inthispaper,we donotconsideritofcentralimportancetoidentifypreciselythe directionofcausalitysinceourdependentvariableandimportant independentvariablesarechoicevariables(wereturntothispoint inSection6).
Weexaminehowthetypeofexternalengagementthatfirms chooseisconnectedtotherelationshipbetweenappropriability strategyandopenness,suggestingthatthenegativeeffectofthe link between appropriability and openness is stronger for for- malcollaborationbreadththanfor externalsearch breadth.We alsoexploreaparticularcaseof“high-risk”openness—competitor collaboration,arguingthatiffirmsdonotdrawfromorcollabo- ratewithcompetitors,theassociationbetweenappropriabilityand opennessisweaker.Basedonananalysisofalargesampleofman- ufacturingfirmsfromthe4thwaveoftheUKInnovationSurvey, wefindpartialorfullsupportforthehypotheses.
2. Conceptualbackground:opennessandappropriability Centraltoourunderstandingoftheinnovationprocessishow organizationssearchfor knowledge (Nelsonand Winter, 1982).
Schumpeterdescribesofthesesearchprocessesascharacterizedby theneedforfirmstosearchforandcarryout“newcombinations”
2 Notethatthisisconsistentwithbothdecreasingpositivemarginaleffectsuptoa top-point(ifthereisatop-point)andincreasingnegativemarginaleffectsafterthat possibletop-point.Notealsothatourempiricalestimationsdonotallowustobe verypreciseabouttheexactshapeoftheconcaverelationshipwithinthepertinent confidenceintervals.
oftechnologies,knowledgeandmarkets:“Toproduceotherthings, orthesamethingsbyadifferentmethod,meanstocombinethese materialsandforcesdifferently”(Schumpeter,1912/1934:65).In thiscontext,innovativesearchcanbedefinedas“anorganization’s problem-solvingactivitiesthat involvethecreationand recom- binationoftechnologicalideas”(Katilaand Ahuja, 2002: 1184).
Indeed, firmsinvest considerable amounts oftime, money and otherresourcesintheirsearchfortheseopportunities(Cohenand Levinthal,1990;Chen,2008).Partofthissearcheffortisexpendi- tureonR&D,butthisisonlyoneelementinthesearchprocessand mayaccountforonlyasmallportionofinvestmentinthesearch forinnovations(PatelandPavitt,1995).
Newmodelsofopeninnovationsuggestingthatfirmsshould makegreaterstrategicuseofexternalknowledgehavespawned anewstreamofresearchonthemanagerialdimensionsofopen innovation (Chesbrough, 2003, 2006; Chesbrough et al., 2006).
Thisperspective is consistentwithresearch thathighlights the importance of horizontal and vertical relationships as sources of innovation (Pavitt, 1984; von Hippel, 1988).The benefits of dedicatedsearchactivitiesforinnovativeperformancehavebeen demonstratedinanumberofempiricalstudiesthatsupportthese models (Katila and Ahuja, 2002; Fleming and Sorenson, 2004;
LaursenandSalter,2006;GrimpeandSofka,2009;Garrigaetal., 2013).Inaddition,thebenefitsofcollaboration—withcustomers, suppliers,universitiesand othersintheinnovationsystems—for innovativeoutcomeshavebeenwidelyacknowledgedinthelit- erature(Powelletal.,1996;Ahuja,2000;Belderbosetal.,2004;
CassimanandVeugelers,2006).
Buildingonthe emerging literatureonopeninnovation, we focusontworelatedformsofopenness—externalsearchandinno- vationcollaboration.3First,wefollowLaursenandSalter(2006)and focusonthebreadthofexternalsearchrelatedtoinnovating,across arangeofdifferentsourcesorchannelsintheinnovationsystem, suchassuppliers,customersanduniversities,inordertocapture thefirm’sopennesstoexternalknowledge. Eachofthesechan- nelsmayinvolveinteractingwithadifferentcommunityofpractice withperhapsopposingsetsofinstitutionalnorms,habitsandrules.
Firmschoosingtoworkwiththeseactorsneedtodevelop(costly) organizationalpracticesthataresuitedtothedomaininwhichthey search.Castinthis light,external searchcanbeseenasaform of“soft”openness,typically involvingdrawingknowledgefrom externalpartieswithoutenteringintolegallybindingagreements.
Second,weexaminethecaseofformalcollaboration,focusingon thebreadth of the firm’sformal collaboration relationshipsfor innovation.Althoughthesettingupofformalcollaborationsismore problematicfor managers,this type ofcooperationcanprovide firmswithaccesstocomplementaryresourcestoenablethesuc- cessfuldevelopmentofnewproductsandprocesses(Powelletal., 1996).Itmayalsoenablethemtobemoreadeptatcommercializ- ingtheseideas(Ahuja,2000;Belderbosetal.,2004).Sinceformal collaborationrequiresafirmanditsexternalpartnertoadhereto anagreedstructurefortheexchange,itcanbedescribedasa“hard”
formofopenness.
Totrytoadvance thetheoryandresearchonthedrivers of hardandsoftopenness,weexploretheroleofappropriabilityfor thefirm’sdecision tobeopentoa broadsetof externalactors inthecontextofinnovation.Anumberofappropriabilitymech- anisms(ormethods)areavailabletomanagerstoallowthefirmto capturerentsfromitsorganization’sintellectualassets.Theimpor- tanceattributedtoarangeofappropriabilitymechanismscanbe
3Ofcourse,theconceptof“openinnovation”involvesawiderrangeofmech- anismsthanthosecapturedbyexternalsearchbreadthandformalcollaboration.
However,thesearetwomechanismsthatarecentraltounderstandingandmea- surementofopeninnovation(DahlanderandGann,2010).
considered, what Cohen et al. (2000: 8) term the “appropri- abilitystrategy” offirms.Anappropriability strategyfrequently involvesuseof formalmethods,suchas patentsor trademarks, aswellasinformalmethodssuchassecrecyorleadtimes.Inthis paper,wefocusontheoverallimportanceattributedtoabroad rangeofprotectionmechanisms,includingpatents,registrationof designs,secrecy,leadtimes,productcomplexityandtrademarks.
Weassume thatmoreimportanceattributedtomoreappropri- abilitymechanisms(ofanytype)meansthatthefirmputsmore emphasisonappropriabilityingeneral—whichmighthaveseparate positiveandnegativeeffectsontherelationshipwithopenness.
Applicationofprotectionmechanisms isimportant forfirms toensuretheirtechnologyisnotcopiedbyothersandtoinform negotiationsover collaborationwitharange ofexternal parties (Cohenetal.,2000).Theuseofoneformofintellectualproperty(IP) mayleadtotheacquisitionofcomplementaryformsofIP,suchas trademarksanddesignregistrations(GambardellaandGiarratana, 2013).Thus,formalandinformalmechanismsgenerallyappearto becomplements(Cohenetal.,2000).Despiteconsiderableevidence thatsuchmechanismsprovideonlypartialprotection,thelitera- turecontinuestoemphasizeinnovationstrategiesrelatedtothe acquisitionanduseofdifferentformsofappropriability(Aroraand Gambardella,2010).
However,relativelylittleisknownabouthowthefirm’satti- tudetoappropriabilityisassociatedwiththeopennessofthefirm toexternalactors(seealso,West,2003).Inexploringthis,wewant tounderstandhowchoicesinoneareaofmanagerialpracticeare relatedtochoicesinotherareas.Ourapproachisbasedontheidea thatthefirmcanbeseenasabundleofrelatedchoices(Rivkin, 2000),andisrootedintheneedformoreinsightsintohowmanage- rialchoicesareinducedorconstrainedbyothersetsofmanagerial decisions.Inparticular,weseektoextendunderstandingofthecon- ceptofopeninnovationbyfocusingontheappropriabilitystrategy anditsrelationtohardandsoftformsofopenness.Thisrespondsto acallintherecentopeninnovationliterature(Chesbrough,2006;
DahlanderandGann,2010)formoreinvestigationintothestrategic dimensionsoffirms’opennessdecisions.
3. Hypotheses
3.1. Therelationshipbetweenappropriabilitystrategyand openness
Thereisacomplexandintimaterelationbetweenhowfirms try toappropriate rents or profitsfrom their innovations, and how open these firms are to the external environment. There aresubstantialrisksfromopennesstoexternalfirmsandorgani- zations(GansandStern,2003;Shane,2003;Chesbrough,2006), themostextremebeingtheft.Morecommonly,firmsfear“invol- untaryoutgoingspillover”,thatis,leakageofcriticalknowledge aboutthefirm’sinnovationeffortstoitscompetitors(Cassimanand Veugelers,2002).Forexample,knowingwhereafirmisfocusingits innovativeeffortscouldprovideimportantinformationtoskilled rivalsabouthowtoshapetheirownsearcheffortsandtargetthe samemarkets.
Inordertoguardagainsttheftandunwantedspillovers,firms canemployarangeoflegalprotectionmethods,suchaspatents, secrecy,andtrademarks.However,thevalueofformaltypesofpro- tectionmechanismsislimitedtotheirdefensibilityinlegalsuits and/orthefirm’sabilitytodemonstrateacrediblethreatinalegal intervention(GansandStern,2003;SherryandTeece,2004).Even iflegalprotectionmethodsareenforceable,skilledrivalsmaybe abletoinventaroundexistingpatentsrelativelyquickly(Mansfield etal.,1981).Inaddition,manyofthekeyfeaturesofmoderninno- vationsdonotlendthemselvestoformalIPprotectionbecausethey
relatetocustomerexperienceor the“lookand feel”of aprod- uct.Also, informalprotectionmechanisms,suchassecrecy,can bebreechedbycompetitorsby“poaching”workersfromincum- bentfirmsor reverseengineeringtheirproducts.In thecaseof leadtimesorfirstmoveradvantages,thesecandissipatequickly inthefaceofstrongcompetitionandrapidtechnologicalchange (LiebermanandMontgomery,1998).Asaresult,firmsoftenoper- ateinenvironmentsofleakyknowledge,strongcompetitionfrom skilledandexperiencedcompetitors,andthethreatofnewfirms enteringtheirproductmarkets.Someofthesecompetitorsmay haveaccesstoconsiderablecomplementaryassetswhichmayout- numberandbemoreeffectivethantheincumbentfirm’sownassets andcapabilities.
Therefore,itisclearthatmanagingexternalsourcesofinnova- tionandrelatedlinkagesinvolveshugeinformationasymmetries.
Inordertogainaccesstoandconvincepotentialpartnersofthe benefitsofexchange,itisnecessarytonegotiateformalcontracts oratleastinformalagreementsbasedonadegreeofmutualunder- standing.Externalpartnerswillrequireenoughinformationabout anideatodevelopsomebeliefinitseventualsuccessfulcommer- cialization.Inotherwords,theyneedtoknowabouttheideabefore theyinvestinit.ThisintroduceswhatArrow(1962)describedas theparadoxofdisclosure,wherein“tradingideas,thewillingness- to-payofpotentialbuyersdependsontheirknowledgeoftheidea, yettheknowledgeoftheideaimpliesthatpotentialbuyersneednot payinordertoexploitit”(GansandStern,2003:338).Whennego- tiatingcontractsinthemarketforideas,disclosurecanincreasethe bargainingpowerofthebuyerandreducethepoweroftheinno- vator,especiallyintheabsenceofcrediblethreatsandIPrights protection.
Thisparadoxofdisclosureappliesalsotoarangeofexternal interactionsbetweentheinnovatingfirmandtheexternalenvi- ronment,beyondthecommercialtransactionofsellingtheidea.
Indeed,towinthesupportofexternalparties ortogainaccess toexternal knowledgesources, itis usually necessaryforfirms toshareknowledge withotheractorsin theinnovationsystem (vonHippel,1987).For instance,workingwithsuppliersonthe developmentofinnovationsnormallyrequiresextensivemutual coordinationandcommitment(DyerandSingh,1998).Inaddition, vonHippel(1986,1988)showsthatmanyinnovatorsworkclosely withleadusersandothercustomersonthedevelopmentofnew products.AsNelson(1995)suggests,externalknowledgesharing allowsfirmstobuildnetworksandcommunitiesaroundareasof mutualinterest,facilitatingtheformationofinstitutionsthathelp tosupportthedevelopmentofa newareaofpractice(seealso, Spencer,2001;Alexyetal.,2013).Evenworkingwithauniversity partneronacollaborativeresearchprojectwillrequirethefirm toprovidesomeinsightsintoitsproblemstoallowtheacademic partnertotailoritsresearchappropriately(PerkmannandWalsh, 2009).
Againstthisbackground,wesuggestthatitiscruciallyimpor- tantfor firmstoalignhowtheyprotect theirinnovations, with their engagement with external actors. One solution might be forfirmstorelyona strategythatinvolvespartialdisclosureof somecentralpartofthetradedknowledgewhilecontrollingaccess tootherparts oftheknowledge. In thecontextof opensource software, Henkel (2006)describes suchan approach as “selec- tiverevealing” (see alsoAlexy et al.,2013).Firms can alsouse theirbehaviorregardingappropriabilitytosend“quality”signals tootherparties.Signalinginvolvesoneentitycrediblyconveying someinformationaboutitselftoanother(Connellyetal.,2011).The ideathatparticularstrategiesresultingincertainbehaviorscanbe interpretedassignals,which,inturn,cansolveproblemsrelated toasymmetricinformation,hasbeenappliedtovariouscontexts including,signalingindividuals’abilitiesinthejob-market(seethe seminalsignalingpaperbySpence,1973)andproductinnovation
strategies (Bhattacharya and Ritter, 1983). In our context, an emphasisonappropriabilitymaybeinterpretedbyexternalparties assignalingthefocalfirm’spossessionofvaluabletechnological knowledgeand,consequently,itspotentialvalueasacollaborator (oranattractiveinvestmentobjectforafinancier).4Italsosignals topotentialpartners thefirm’sawarenessof theimportanceof appropriabilitymechanisms,suchaspatentsorsecrecy.
Althoughanemphasisonappropriabilitycanbeassociatedwith effectiveexternalengagement,theliteratureonopeninnovation showsthatover-emphasisonthisareacanhavesignificantneg- ativeconsequencesforthepossibilitiesforexternalcollaboration (LaursenandSalter,2005;Chesbrough,2006;Alexyetal.,2009;
ReitzigandPuranam,2009).Forinstance,legaldepartmentscan putstrictlimitsonindividualemployeesexchangingknowledge acrossthefirmboundary,andadoptadefensivestanceinorderto ensurepriorityforsubsequentpatentclaims(DavisandHarrison, 2001).Manylargefirmsrequiretheirstafftoobtainpermission fromthelegalteambeforeengagingwithexternalparties,which actsasasignificanthurdletoworkingwithnewexternalpartners (Alexyetal.,2009).Legaldepartmentsoftenrequirecollaboration agreementstobeinplacebeforeembarkingonanexchangewithan externalparty,andcomplexnegotiationsmayhamperthedevel- opmentofemergentcollaboration.Mechanismstoensuresecrecy andprotectleadtimesmightdiscouragefirmsfromengagingin informalexchangeswithexternalactors(Liebeskind,1997).Thus, whilesomeemphasisonappropriabilitysendsa positivesignal topotentialcollaborators,toostrongafocuscouldbeinterpreted assignalingthat collaborationwiththefocal firmwill bediffi- cult,andthatconflictsovercontrolandownershipofknowledge mightensue.Applicationofoverlyrestrictiveprotectionmecha- nismsmightreducetheinterestoffirmmanagersincollaboration, andscareoffexternalactorsintheinnovationsystem.
Theabovediscussionsuggeststhatthefirm’sappropriability strategyislinkedcloselytothefirm’slevelofopenness.Although firmsmayneedtobeopentoarangeofexternalactors,theyalso needtoappropriatetheprofitsfromtheirinnovations,andwhether thisopennesscanbeconsideredhardorsoft,thereneedstobe meansinplacetoprotecttheirIP.Thus,opennessandsomesort ofappropriabilitystrategygohandinhand:firmsneedtodisclose someknowledgeinordertogainfromexternalparties,butthey needalsotoprotectpartsoftheirknowledgeiftheyaretogain valuefromtheexchange.Toostronganemphasisonappropriabil- itywillweakentherelationshipbetweenappropriabilityandsoft orhardformsofopenness.Thus,weposit:
Hypothesis1a. Thestrengthoffirms’appropriabilitystrategies willshowaconcaverelationshipwithexternalsearchbreadth.
Hypothesis1b. Thestrengthoffirms’appropriabilitystrategies willshowa concave relationship withinnovationcollaboration breadth.
Wehaveaddressedtheimplicationsofappropriabilityforexter- nalsearchandformalcollaboration,butweneedalsotoinvestigate thedifferencesbetweenthesetwoformsofopenness.Thereisa strongsuggestionthattheimplicationsofhighlevelsofappropri- abilityplayoutdifferentlyfor hardandsoftforms ofopenness:
firmsthatinvokestrongprotectionmechanismstohelpcapture
4 BhattacharyaandRitter(1983)suggestthatanimportantreasonforfirmsdis- closingprivatetechnologicalknowledgeisthatitisaqualitysignaltothecapital markets.Haeussleretal.(2009)argueandcorroborateempiricallythatinvestors arefacedwithconsiderableuncertaintyandthereforerelyonpatentsassignals whentryingtoassesstheprospectsofpotentialportfoliocompanies.Whilewe notethatsignalstothecapitalmarketmaybeanimportantreasonforaforceful appropriabilitystrategy,addressingthisissueindepthisbeyondthescopeofthis paper.
valuefromtheirinnovativeeffortsarelikelytofinditmorediffi- culttofindpartnerstocollaboratewith,butlesslikelytofindthatit hampersexternalsearch.Thisisbecausealthoughastrongempha- sisonappropriabilitymightdeterpotentialformalcollaborators,it doesnotscareoffexternalsources,suchasuniversitiesorsuppli- ers,fromengagingininformalexchangesofknowledge.Relatedly, externalsearchrequireslesstwo-wayinteraction.Accordingly,we suggestthattheunderlyingnegativeeffectofhighlevelsofappro- priabilityonopennesswillbestrongerforformalcollaborationthan forexternalsearchbreadth.Thus,
Hypothesis2. Theconcavityoftherelationshipbetweenstrength offirms’appropriabilitystrategiesandopennesswillbestrongerfor formalinnovationcollaborationbreadththanforexternalsearch breadth.
3.2. Openness,appropriabilityandcompetitorcollaboration Itisclearthatmanyfirmsrelyoncompetitorstoprovidecrit- icalinformationtoguideandshapetheirowninnovativeefforts (vonHippel,1988).Firmscanlearnfromtheircompetitorsdirectly orindirectly—indirectlearning beingmore commonthandirect collaboration. Indirect learning includes reverse engineering of competingproductsormirroringtheinnovativeeffortsof com- petitorsinownproductdevelopmentefforts(Allen,1977).Many firmsmakeactiveeffortstotrackandmonitortheircompetitors’
activitiesby scrutinizingproductannouncements, patentappli- cationsanduniversitycollaborationpartners(SlaterandNarver, 1995).Althoughlesscommon,animportantmechanismtoaccess external knowledge is collaboration with a competitor (Hamel etal.,1989),forexampleonthedevelopmentofpre-competitive researchprojects(Spencer,2003),inthestandardssettingprocess (Leiponen,2008),overcommunitybuildinginitiatives(Dahlander andGann,2010),orvialicensingagreements(LeoneandReichstein, 2012).
However,learningfromcompetitorsisariskygame,andthe dangersoftheftorunplannedoutwardspilloversaregreat.More- over,theserisksaremuchgreaterinthecontextofexternalsearch orinnovationcollaborationwithcompetitorsthaninrelationto interactionswithanyotheractorinthefirm’sportfolioofexter- nalsearchchannelsorinnovationcollaborations.Thisisbecause thecontentandstructuralcompatibilityofcompetitors’knowledge maybethesameasthatofthefocalfirm(LaneandLubatkin,1998), allowingcompetitorspotentiallytobenefitrelativelyeasyfromany involuntaryoutwardspillovers.Therefore,wesuggestthatwork- ingwithcompetitorsrequiresthefirmtopayextraattentionto appropriabilitytoavoidunwantedspilloversofknowledge.Itcan beassumedthatonlyfirmswithstrongappropriabilitystrategies willengageincollaborationswithcompetitors;therefore,thepres- enceofacompetitorinthefirm’sportfolioofknowledgesources orcollaborationpartnerswillstrengthentheassociationbetween appropriabilityandopenness.Conversely,iftherearenocompeti- torfirmsinthefocalfirm’spartnerportfolio,thentheneedfor appropriabilitymechanismsisreduced.Thus:
Hypothesis3. Theabsenceofcompetitorsinfirms’knowledge sourcing portfolios or collaboration partnerportfolios weakens the connection between appropriability and openness in rela- tiontoexternalsearchbreadthorformalinnovationcollaboration breadth.
4. Dataandmethod
4.1. Data
Thedatafortheanalysisarefromthe4thUKInnovationSurvey.
Thebackgroundandmotivationforinnovationsurveysisdescribed
intheOrganisationforEconomicCo-operationandDevelopment’s (OECD)Oslo Manual(OECD, 2005).Innovation surveysare part ofawider traditionofinnovationstudiesthat involve“subject- oriented”and “object-oriented” approaches tothecollection of information on innovationactivities (Smith,2005). Innovations surveysare“subject-oriented”becausemanagersareaskeddirectly todescribetheirinnovativeactivities.Nationalinnovationsurveys arebasedontheYaleandothersurveysofinnovativeactivities, suchasR&Dsurveys(forexamples,seePavitt,1984;Levinetal., 1987;CohenandLevinthal,1990;Klevoricketal.,1995).Sincethe early1990s,innovationssurveyshave beenconductedbymany governments and statistics agencies around the world, includ- ingmostmembersoftheEuropeanUnion,SouthAfrica,Canada, AustraliaandtheUSamongothers.
TheUKgovernmenthasconductedaninnovationsurveyevery fewyearssincetheearly1990s,andin2005itadministeredthe 4thUKInnovationSurvey.Administrationofthesurveyanddata collectionwasmanagedbytheOfficeforNationalStatistics(ONS), theUKofficialgovernmentstatisticaloffice(RobsonandOrtmans, 2006).Thiswasapostalsurveysenttomorethan28,000busi- nessunitsintheUK,basedonasampleoffirmscreatedbythe ONS.Thesamplecoversfirmswithmorethan10employees.In ordertoensureadequateregionalandindustryresponserates,the ONSconductedacensusofallfirmswithmorethan250employ- eesandastratifiedsampleoffirmswithlessthan250employees (smallandmediumsizedenterprises—SMEs).TheSMEswerefrom 23industriesand12regionsbasedoninformationcontainedinthe ONSInter-DepartmentalBusinessRegister(DTI,2005).Although responsewasvoluntary,thesurveyresponse ratewas58%.The responseratesforindividualsectors,regionsandsizeclasseswere similartotheaggregateresponserate(RobsonandOrtmans,2006).
Thesampleofmanufacturingfirmsincluded4863firms.In this study,weusethe2931manufacturingfirmswithnon-missingval- uesthatdeclaredpastorcurrentinnovativeactivities.Ofthe2931 firms,744reliedonpastinnovations,butdidnotinnovatein2004.
Thequestionnairewasaddressedtotheindividualinthefirm officiallyresponsibleforprovidinginformationonthefirm’sactiv- itiestotheONS(suchasinformationusedtocalculatetheUK’s GrossDomesticProduct).ThequestionnaireisbasedontheOECD’s OsloManual,whichhasbeenextensivelypilotedandpre-testedin theUKandotherEuropeancountries(Smith,2005).TheUKgov- ernmentalsocommissionedadditionalpilotstudies(Bullocketal., 2004).Tohelpavoidcommonmethodbias,thequestionnairewas constructedtoincludedifferenttypesofresponses.Forexample, responsetypesincludedLikertscales,yes/noanswers,indications ofpercentagesandquestionsrequiringabsolutenumbers.Tocheck forcommonmethodbias,weconductedaHarman’sone-factortest ontheitemsincluded.Sinceweidentifiedanumberoffactorsand sincetheprimaryfactor accountedforless thanthemajorityof thevariance(the firstfactoraccountedfor31%ofthevariance), thereappeartobenopotentialproblemsassociatedwithcommon methodbias(PodsakoffandOrgan,1986).Thesurveywasadminis- teredinasinglewavewhichdoesnotallowustocompareearlyand laterespondents.Ahighresponserateiscommonlyacknowledged toavoidnon-responsebias(ArmstrongandOverton,1977:396):
inthiscontext,a58%responseratecanbeconsideredexcellent.
4.2. Measures
4.2.1. Dependentvariable
Weusetwovariablestomeasureexternalsearchbreadthand innovationcollaboration breadth. Externalsearch breadth isthe numberofexternalsourcesofknowledgeorinformationusedby thefirminitsinnovativeactivities.Thesurveyliststenpossible externalsourcesandfirmswereaskedtoindicatetheimportance (ona0–3scale)ofeachofthesesources.Thelistofsourcesincluded
inthequestionnairewasbroadandtheitemswerenotexclusive.
Thelistreflectstherangeofsourcesassociatedwiththeinnovation system,includingsuppliers,clientsandcompetitors,andalsogen- eralinstitutions,suchasregulatoryandstandardsbodies(Lundvall, 1992;Nelson,1993;Spencer,2001).FollowingLaursenandSalter (2004,2006),thismeasurehasbeenusedinnumerousstudiesof openinnovationtoproxyforfirm-levelopenness(seeforexample, TetherandTajar,2008;GrimpeandSofka,2009;Leeetal.,2010;
LeiponenandHelfat,2010;Garrigaetal.,2013;Loveetal.,2013).
Weusethesixtypesoforganizationalsources—suppliers,clients or customers, competitors, consultants and private R&D insti- tutes,universities,andpublicresearchinstitutes—whichfocuses onsourceswhereinteractionmightbeinvolved,inturninvolving riskofknowledgeoutflows.Weexcludedsourceswhereinterac- tionwouldnotoccur(suchasscientificpublications,andtechnical standards).First,eachofthesixsourcesiscodedasabinaryvariable indicatetheimportanceoftheknowledgesourcewith0indicat- ingnoorlowand1indicatingmediumorhighimportance.Then thesixsourcesaresummedwiththefirmscoring0ifnoknowl- edgesourcesareusedand6ifallknowledgesourcesareused.The setofitemsappearstohaveahighdegreeofinternalconsistency (Cronbach’sAlphaCoefficient=0.80).Inordertoapplyfractional response regression (see below),we normalize the variableby dividingbythehighestpossiblenumberofsources used(6),so thattheresultingvariabletakesaminimumvalueof0andamax- imumof1.Tomeasurecollaborationbreadth,firmswereasked toindicatewhetherornot theyhad collaboratedoninnovation activitieswithanyofthesixtypesoforganizationslistedabove,in theperiod2002–2004.Themeasurewasthencomputedsimilarto searchbreadth(Cronbach’sAlphaCoefficient=0.88).
4.2.2. Explanatoryvariables
Toobtainsomeinsightintotheroleofappropriabilitymethods atfirmlevel,wedrawontheresponsestoaquestioninthesur- veyonthedegreeofimportancetothefirmofdifferentmethods ofprotection.Thesurveyquestionissimilartothoseusedinpre- viousstudiesofappropriabilitymethods(Levinetal.,1987;Cohen etal.,2000;JensenandWebster,2009).Basedontheresponses, wecreatedameasureoftheoverallstrengthofthefirm’sappro- priability strategyby addingup theusesof thesixmeasuresof formalandinformalprotectionlistedinthesurvey(scoredona 0–3scale).Thesixitemsarepatents,registrationofdesign,trade- marks,secrecy,leadtime,andcomplexity.Thesetofitemsappears tohaveahighdegreeofinternalconsistency(Cronbach’sAlpha Coefficient=0.86).5
Tocontrolfortheimportanceofabsorptivecapacity, weuse firm-levelR&Dintensity(R&Dexpendituredividedbysales)(Cohen andLevinthal,1990).ThenumeratoristakenfromtheUKinnova- tionsurvey,whilethedenominator—firmsales—isbasedonONS register data,supplied withthesurvey data,for thesame year (2004).Wecontrolalsoforfirmsize,measuredasnumberofemploy- ees(expressedinlogarithms).Numberofemployeesistakenfrom ONSregisterdata,suppliedwiththesurveydata,foryear2004.In ordertocontrolforbreadthofopennessofnewfirms,weincludea measureforwhetherthefirmwasestablishedafter1January2000.
Here,wefocusonthesubsetofstartupswithformalR&Dactivi- ties,tocreatethevariableR&Dactivestartups.However,wedonot haveinformationonsmallstartups(lessthan10employees),nor dowehaveinformationonfirmsthatdidnotsurvive.Weincludea
5Notethatourmain independent variabletakesaccountof bothvariation stemmingfromthenumberofappropriabilitymechanismsandtheimportance attributedtoeach,butourdependentvariablesdonottakeaccountoftheimpor- tanceofeachtypeofcollaborationbecausewedonothaveinformationonthe importanceattributedtoeachoftheinnovationcollaboratorsofthefocalfirm.
Table1
Descriptivestatisticsandsimplecorrelations(n=2931).
Variable Mean Std.D. Min. Max. 1. 2. 3. 4. 5. 6. 7.
1 Externalsearchbreadth 0.39 0.26 0 1
2 Innovationcollaborationbreadth 0.14 0.27 0 1 0.30
3 Appropriabilitystrategy 6.70 5.50 0 18 0.48 0.28
4 R&Dintensity 0.01 0.05 0 0.83 0.14 0.16 0.18
5 R&Dstart-up 0.05 0.23 0 1 0.09 0.10 0.06 0.14
6 Numberofemployees(log) 4.27 1.43 2.30 9.94 0.26 0.26 0.34 0.02 -0.03
7 Partofanenterprisegroup 0.44 0.50 0 1 0.15 0.17 0.27 0.07 0.01 0.49
8 Marketsize 3.16 1.62 1 5 0.20 0.21 0.35 0.14 0.03 0.30 0.25
Note:Correlationsequaltoorabove|0.04|aresignificantatp<0.05.Two-tailedtests.
control for firms’ market size based on a measure of involve- mentlocal,regional,nationalorinternationalmarkets.Finally,we include14industrydummiesand12regionaldummiestoaccount fordifferentpropensitiesforopennessacrossindustriesandgeo- graphicspace.
Table1presentsthedescriptivestatisticsandsimplecorrela- tionsamongourvariables.Noneofthecorrelationsaresufficiently strongtorequirefurtherinvestigationofpotentialmulticollinear- ityproblems.Table2showsaveragevaluesforthestrengthofthe appropriabilitystrategy,externalsearchbreadth,andcollaboration breadth,byindustry.InlinewiththeresultsoftheYaleandCarnegie Mellonsurveys,chemicalsandelectronicshaveparticularlyhigh scoresforappropriability,whilethelow-techindustrieshaverela- tivelylowappropriabilityscores.Overall,acrossindustries,thereis abroadcorrespondencebetweenlevelsofappropriability,external searchbreadthandcollaborationbreadth.
4.3. Statisticalmethodandregressionresults
Ourdependentvariables(externalsearchbreadthandcollabo- rationbreadth)takeonnon-negativeintegervaluesbecausethey are counts of scores. A Poisson regression model (or negative binomialregressioninthecaseofoverdispersion)mightseema reasonablechoice.However,inoursettingwehavetwodepend- ent variables that are restricted by an upper bound (6 is the maximumofsources/collaborationpartners),makingPoisson or NegativeBinomialdistributionsnotapplicable.Instead,wefollow Wooldridge(2002:661)whosuggeststhatthedependentvariable canbe“obtainedbydividingacountvariablebyanupperbound”, andthatsuchatransformationmeansthatfractionallogitregres- sioncanbeapplied(PapkeandWooldridge,1996).Inthisapproach, E(y|x)ismodeledasalogisticfunction,whereyisthedependent variableandxisasetofregressors:E(y|x)=exp(xˇ)/[1+exp(xˇ)].
Table2
Strengthofappropriabilitystrategy,ExternalsearchbreadthandInnovationcollab- orationbreadth,industryaverages.
Industry Strengthof
appropriability strategy
Externalsearch breadth(×6)
Innovation collaboration breadth(×6)
Food,drinkandtobacco 5.68 0.42 0.72
Textiles 6.68 2.20 0.77
Wood 4.40 2.19 0.62
Paperandprinting 4.89 2.15 0.52
Refinedpetroleumproducts 6.00 1.86 1.00
Chemicals 10.05 2.82 1.31
Plastics 7.34 2.57 0.98
Non-metallicminerals 5.82 2.21 0.77
Basicmetal 5.80 2.16 1.02
Fabric.metalproducts 4.82 1.99 0.48
Machinery 7.53 2.43 0.89
Electrical 8.40 2.80 1.14
Transport 7.67 2.47 0.99
Other 6.30 2.19 0.50
Averageacrossindustries 6.53 2.17 0.84
Thismodel ensures that thepredictedvalues of yarein (0,1) and that the effect of any xj on E(y|x) diminishes as xˇ→∞. Accordingly,themethodisnon-linear.Itcanbeestimatedusing quasi-maximumlikelihood(Wooldridge,2002).Weestimatethe modelsusingseeminglyunrelatedestimationssincethismethod allowsustotakeintoaccountthatdecisionsregardingexternal searchandcollaborationareoftencloselyrelated.Whencomput- ingthestandarderrors,theprocedureestimatesthesimultaneous covarianceofthecoefficientsinthetwomodels(forsearchand collaboration).
To graph the relationships, we apply a simulation-based techniqueproposedbyKingetal.(2000)andintroducedtomanage- mentresearchbyZelner(2009).Thesimulationapproachinvolves takinganumberofdrawsfromthemultivariatenormaldistribu- tionaroundtheestimatedcoefficientvectorfromthenon-linear model(inourcase,thefractionalresponsemodel),andtheesti- matedvariance–covariancematrix,forthecoefficientestimatesin themodel.Toperformthesimulations,wetake10,000drawsand useamodifiedversionoftheStatacodeprovidedbyBramboretal.
(2006).
Table3presentsthedescriptivestatisticsforaveragelevelof externalsearchandcollaborationforeachofthe19possibleout- comesfor thestrength ofappropriability strategy variable.The descriptivestatisticsseemtobeconsistentwiththeideaofacon- caveassociation(intermsofdecreasingpositivemarginaleffects) with a somewhat stronger concave relationship in thecase of innovationcollaborationbreadth,althoughwecannotdrawfirm conclusionsbasedonlyonthedescriptivestatistics.
Themainresultsoftheseeminglyunrelatedfractionalresponse regressionsarepresentedinTable4.TheestimationsinModels
Table3
Averagesofexternalsearchbreadthandinnovationcollaborationbreadthaverages forgivenlevelsofstrengthofappropriabilitystrategy.
Strengthof appropriability strategy,outcome#
Frequency Externalsearch breadth(×6), average
Innovation collaborationbreadth (×6),average
0 700 1.33 0.21
1 70 1.66 0.24
2 118 1.83 0.37
3 164 2.23 0.60
4 134 2.16 0.58
5 124 2.25 0.95
6 204 2.63 0.73
7 127 2.60 0.80
8 138 2.57 0.93
9 189 2.72 1.05
10 128 2.79 1.30
11 141 2.76 1.34
12 186 3.38 1.19
13 111 3.23 1.50
14 101 3.29 1.20
15 93 3.28 1.57
16 79 3.42 1.80
17 36 3.47 1.53
18 88 3.84 1.18
Table4
Seeminglyunrelatedfractionalresponseregressions:therelationshipbetweenappropriabilitystrategyandopenness.
Externalsearchbreadth Innovationcollaborationbreadth
ModelI ModelII ModelIII ModelIV
Coeff. Std.err. Coeff. Std.err. Coeff. Std.err. Coeff. Std.err.
Appropriabilitystrategy 0.155*** (0.012) 0.142*** (0.013) 0.278*** (0.029) 0.215*** (0.029)
Appropriabilitystrategysq. −0.004 (0.001) −0.003*** (0.001) −0.009*** (0.002) −0.008*** (0.002)
R&Dintensity 0.939** (0.369) 2.714*** (0.664)
R&Dstart-up 0.308*** (0.073) 0.687*** (0.169)
Numberofemployees(log) 0.106*** (0.016) 0.267*** (0.036)
Partofanenterprisegroup −0.082† (0.045) 0.095 (0.098)
Marketsize 0.004 (0.014) 0.106*** (0.032)
Constant −1.25*** (0.044) −1.893*** (0.103) −3.227*** (0.117) −4.645*** (0.245)
Industryeffects(14) Yes Yes Yes Yes
Geographyeffects(12) Yes Yes Yes Yes
No.ofobs. 2931 2931 2931 2931
Loglikelihood −1378 −1364 −957 −906
ML(Cox–Snell)R2: 0.23 0.26 0.08 0.15
Modelstatisticsaresingleequationstatistics.
†Two-tailedtest:p<0.10.
*Two-tailedtest:p<0.05.
**Two-tailedtest:p<0.01.
***Two-tailedtest:p<0.001.
IandIIIareexcludingthecontrolvariablesandinModelsIIand IVincludethefullsetofcontrols.Theresultsare(also)consistent withHypotheses1aand1b—thattherelationshipbetweenstrength ofthefirms’appropriabilitystrategy,andexternalsearchbreadth andcollaborationbreadthisconcave.Theparametersofstrengthof appropriabilitystrategyarepositiveandsignificant,andtheparam- etersofstrengthofappropriabilitystrategysquaredarenegative andsignificant.ThepredictionsdepictedinFigs.1and2arebased onModelsIIandIVandillustratethatthereisaconcaverelationship (atleastintermsofdecreasingpositivemarginaleffects)between thestrengthoffirms’appropriabilitystrategies,andexternalsearch breadthandinnovationcollaborationbreadth.
Thecurvesindicatethattheconcaverelationshipismorepro- nouncedforcollaborationbreadth,althoughtheslopeofthecurve doesnotbendstronglydownwardsafteratheoreticaltop-pointof approximately13onthe18-pointappropriabilitystrategyscale.
Forexternalsearchbreadth,thetheoreticaltop-pointofthecurve isnotwithintherangeofthevariable.Theseobservationsareinline withHypothesis2thattheconcavityoftherelationshipbetween thestrengthoffirms’appropriabilitystrategiesandopennesswill bestrongerforinnovationcollaborationthanforexternalsearch breadth.For furtherconfirmation of thesefindings, weapply a
Fig.1.Relationshipbetweenexternalsearchbreadthandthestrengthoffirms’
appropriabilitystrategies.
statisticaltesttoassesswhetherthecoefficientof(thestrengthof) theappropriabilitystrategyissignificantlyhigherforinnovation collaborationthanforexternalsearch,andwhetherthenegative coefficientofappropriabilitystrategysquaredissignificantlylower (more negative) for innovation collaboration than for external search.Usingthe“stacking”datamethodimplementedinStata’s suestestimationprocedure,weperformtwoWaldteststhattake accountofthecovarianceintheparametersacrossthetwomod- els,whichensuresthatthetestsfortheequalityofthecoefficients are correct (StataCorp,2009, pp.1812–1814). We findthat the coefficientof(thestrengthof)appropriabilitystrategyissignifi- cantlyhigherforinnovationcollaborationthanforexternalsearch (p=0.0047) and that thenegative coefficient of appropriability strategysquaredissignificantlylower(morenegative)forinnova- tioncollaborationthanforexternalsearch(p=0.0025).Thesetests alsolendsupportforHypothesis2.
WeuseasplitsampleproceduretotestHypothesis3thatthe exclusionofcompetitorsfromfirms’knowledgesourcingportfo- lios orcollaboration partnerportfolios weakens theconnection betweenappropriabilityandopennessinrelationtoexternalsearch or formal collaboration. We find only partial support for this hypothesis,sincetheresultsdependonwhichgroupsoffirmsare
Fig.2.Relationshipbetweenbreadthofcollaborationandthestrengthoffirms’
appropriabilitystrategies.
Table5
Seeminglyunrelatedfractionalresponseregressions:Therelationshipbetweenappropriabilitystrategyandopennesswhenconsideringcompetitorsintheopennessportfolio ornot.
Externalsearchbreadth Innovationcollaborationbreadth
ModelI ModelII ModelIII ModelIV
Coeff. Std.err. Coeff. Std.err. Coeff. Std.err. Coeff. Std.err.
Appropriabilitystrategy 0.028*** (0.005) 0.040*** (0.004) 0.021* (0.008) 0.070*** (0.018)
Appropriabilitystrategysq. – – – –
R&Dintensity 1.162** (0.438) 0.914* (0.400) 0.650 (0.488) −1.473 (1.180)
R&Dstart-up 0.139 (0.106) 0.064 (0.069) 0.227† (0.124) 0.355 (0.248)
Numberofemployees(log) 0.056** (0.020) 0.055*** (0.016) 0.087** (0.028) 0.008 (0.061)
Partofanenterprisegroup −0.069 (0.050) −0.077† (0.046) −0.074 (0.081) 0.224 (0.184)
Marketsize 0.001 (0.015) −0.032* (0.014) 0.077*** (0.024) −0.087 (0.056)
Constant −1.335*** (0.101) −0.151 (0.105) −1.309*** (0.181) 0.794 (0.499)
Industryeffects(14) Yes Yes Yes Yes
Geographyeffects(12) Yes Yes Yes Yes
No.ofobs. 981 1479 465 286
Loglikelihood −423.1 −692.8 −216.4 −118.6
ML(Cox–Snell)R2: 0.21 0.21 0.10 0.04
Sample Notincluding
competitorsinthe opennessportfolio
Includingcompetitors intheopenness portfolio
Notincluding competitorsinthe opennessportfolio
Includingcompetitors intheopenness portfolio Modelstatisticsaresingleequationstatistics.
† Two-tailedtest:p<0.10.
* Two-tailedtest:p<0.05.
** Two-tailedtest:p<0.01.
***Two-tailedtest:p<0.001.
compared.Ifweconsideronlythegroupoffirmsthatengagein externalsearchorcollaboration(andexcludethosethatdonot), wefindevidencethatisconsistentwithHypothesis3—ofastronger relationshipbetweenappropriabilityandopennessiffirmsinclude competitorsintheiropennessportfolioscomparedtothealterna- tivesituations.Thisevidenceisbasedonthe“stacking”datamethod referredtoabove(StataCorp,2009)—themethodensuresthatthe resultsoftheWaldtestforequalityofthecoefficientsarecorrect when comparing across models. Table 5 presents a split sam- pleanalysiscomparingtherelevantcoefficientstoappropriability (notethat in thesplitsample analysis,we dropappropriability squaredsincethistermisneversignificantinthisanalysis)per- tainingtobothexternalsearchbreadthandexternalcollaboration breadth.Thecoefficientsaresignificantly smallerfor themodel includingfirmsthatdonotusecompetitorsforsourcesofknowl- edgeorcollaboration(Waldtestsignificantat0.1%inbothcases), implyingthatthatthepositiverelationshipbetweenbothformsof opennessandappropriabilitystrategyaremoderatedresultingin aweakerrelationshipifcompetitorsarenotexploited.
Ifweexpandthesampletoourfullsamplebyalsoincluding
“closed”firms,thatis,firmsthatdonotengageinexternalsearch orcollaborationforourtheanalysis,theresults(notreportedhere forreasonsofspace)arenotconfirmed.Forbothtypesofopen- ness,we finda linearrelationship betweenappropriability and opennessifcompetitorsare includedintheportfolio (verysig- nificantcoefficientsof0.04forsearchand0.07forcollaboration), andaconcaverelationshipbetweenappropriabilityandopenness ifcompetitorsarenotused(verysignificantcoefficientsof0.332for search/−0.135searchsquaredand0.342forcollaboration/−0.012 collaborationsquared).Sowhilethecost-sideofappropriabilityis lessevidentinthecaseofinvolvementofcompetitors(whichis consistentwithHypothesis3),acrossmostofthedistribution,the relationshipbetweenopennessandappropriabilityisstrongerif competitorsarenotincludedintheopennessportfoliocompared toiftheyareincluded.Theseresultswouldappeartoruncounter toHypothesis3.
Thedifferenceinthefindingsforthesetwosetupsisthatinclud- ingzerosearchorzerocollaborationfirmsinthegroupoffirms withnocompetitorsinthecollaborationportfolioenhancesthe
relationshipbetweenopennessandappropriabilityforthatgroup comparedtothegroupthatusecompetitors.However,although firmsthatneithersearchexternallynorcollaboratedohaveappro- priabilitymechanismsinplace(153outofatotalof471firmsfor externalsearchbreadth,and1536outof2180for collaboration breadth),theprobabilityofobservinglowlevelsofopennesscom- binedwithlowappropriabilityishigherforthisgroupoffirms.For thisreason,comparingfirmsthatdoanddonotusecompetitors, butincludingonlythosewithnon-zerosearch/collaborationmay bethe“cleanest”testofthehypothesis.Insum,however,wefind onlypartialsupportforHypothesis3.
4.4. Alternativeexplanationsandrobustnesschecks
Toruleoutalternativeexplanationsandtochecktherobustness ofourresults, we specifyseveralalternativeeconometricmod- els.Theremight beconcernthat ourresultsdependultimately ontheinclusionofsquaredtermsintheregressions.Wewould arguethatthesquaredtermsneedtobeexplicitlymodeledbecause theyare strongly significant and, hence, theirexclusion would leadtobiasedestimations(especiallyforinnovationcollaboration breadth).However,Table6ModelsIandIVpresenttheestima- tions withthe squared terms excluded. These models confirm thepredominantlypositiverelationshipbetweenstrengthofthe appropriabilitystrategyontheonehand,andbreadthofexternal searchandcollaborationontheother.
There also might be concern that the relationship detected couldbeinflatedduetoanendogeneityproblem—inparticularthe self-selectionofappropriabilityandopennessstrategiesby“high- quality”firms.Intheabsenceofinstrumentalvariablesthatwould fulfillboththestrengthand validityrequirements, weincluded inourtwoequationstwoproxiesfor“high-qualityfirms”inthe contextofinnovation.Arguably,innovationisthecentraloutcome variablerelatedtoopeninnovation,andtheavailableeconometric evidencedemonstratesthatinnovativefirmsdemonstratehigher productivity, higher profits, better export performance, higher marketvalue,bettercreditratings,largermarketshareandhigher probabilityofsurvivalinthemarket(Geroskietal.,1993;Banbury andMitchell,1995;Blundelletal.,1999;Hall,2000;Czarnitzkiand
