Complementarity between technology make and buy in innovation strategies: evidence from Belgian manufacturing firms

This paper characterizes the innovation strategy of manufacturing fims and examines the relation between the innovation strategy and important industry-, firm- and innovation-specific characteristics using Belgian data from the Eurostat Community Innovation Survey. In addition to important size effects explaining innovation, we find that high perceived risks and costs and low appropriability of innovations do not necessarily discourage innovation, but rather determine how the innovation strategy is formulated. The paper then focuses on the determinants of the decision of the firm to produce technology itself (Make) or to source technology externally.(Buy). One striking observation is that most firms use a combination of Make and Buy strategies. Small firms more likely restrict their innovation strategy to an exclusive make or buy strategy, while large firms are more likely to combine both internal and external knowledge acquisition in their innovation strategy. An interesting result that highlights the complementary nature of the Make and Buy decisions, is that firms for which internal information is an important information source for innovation are more likely to combine internal and external sources of technology. We find this to be evidence of the fact that in-house R&D generates the necessary absorptive capacity to profit from external knowledge acquisition. We also find that the effectiveness of different mechanisms to appropriate the benefit of innovations and the internal organizational resistance against change are important determinants of the firm's technology sourcing strategy.