The Policy of Internal Innovation and External Acquired Technologies (PDF)

Essay from the year 2018 in the subject Business economics - Offline Marketing and Online Marketing, grade: A-, University of New Orleans, language: English, abstract: According to different studies, it has been observed that even the largest innovation active companies nowadays cannot depend on internal sourcing only but also require knowledge from the outside during innovation development. On top of doing their research, as well as development, diverse organizations have been noted to typically engage in knowledge acquisition on the technology market. In this context, in acquiring this knowledge, these firms apply aspects such as licensing, contracting out R&D, and acquisition of other companies or attraction of experienced researchers with pertinent knowledge.

Transaction costs method observes whether it will be preeminent for a company to develop its own technology or obtain it from the market. In other words, the internal as well as the external activities of innovation are treated as substitutes. Consequently, the joint occurrence of these activities of acquiring knowledge internally or externally at the organizational level remains to be suggestive of complementarity sandwiched between the activities. In other words, as the level of one activity increases, so is the marginal of the other activity (Mortara & Ford, 2012). Therefore, own internal knowledge has been observed to increase the marginal return to external strategies of acquiring knowledge, a concept that is reminiscent of the 'absorptive capacity' notion introduced by scholars that stresses on the significance of a preceding know-how stock for scanning, screening and absorbing external knowledge. In unison, external knowledge access can leverage internal R&D activities' efficiency, especially after the company has exhibited a motivation of taking on external knowledge and ideas.