Knowledge cannibalism in the European ICT sector

Abstract

Purpose Based on the sample of the European information and communications technology (ICT) companies, this paper aims to identify which strategy of knowledge generation is most beneficial for companies: internal knowledge development or absorption of knowledge external to the company through corporate acquisition or merger. Design/methodology/approach In this study, a longitudinal analysis of European ICT companies was conducted, contrasting internal knowledge creation, in the form of patent accumulation and research and development (R&D) efforts, with external learning through merger-and-acquisition (M&A) activities to uncover the best strategies for performance maximization. Findings Results suggest that the two knowledge generation strategies are not complementary and demonstrate only marginal impact on organizational performance. However, intriguing patterns in combining the two became apparent. It was found that patent accumulation improves learning achieved through M&A activities, while also acting as a protection against corporate takeover. At the same time, the internal knowledge generation strategy was found to have a negative impact on financial performance, with external knowledge generation demonstrating somewhat mixed results. Practical implications This paper provides practical insights into the patterns of internal and external knowledge generation activities. The two strategies were found not to be complementary, implying that companies must carefully choose their preferences. Originality/value This large-scale study tackles the interplay between internal and external knowledge generation strategies, which are mostly studied separately. It reveals new patterns in corporate acquisition and divestment strategies as sources of new knowledge. It also ties the knowledge paradigm to organizational performance.

Top R&D investors, structural change and the R&D growth performance of young and old firms

“…This reflects the fact that some high-tech sectors in which the USA is specialized, such as Software and Computers, are moving through 'the deployment of the paradigm across the productive structure' (Perez, 2003). During this phase, the industry is strictly tied to the financial capital that allows firms to grow through mergers and acquisitions and exploit economies of scale and scope (Chen et al, 2021;Haraszkiewicz-Birkemeier & Hołda, 2019;Kiisk & Rungi, 2020;Perez, 2003).…”

“…During the period considered, firms operating in the computer industry with the largest innovative output were particularly prized by the financial markets (Dosso & Vezzani, 2020), which gave them increasing leverage to further grow through acquisitions (Chen et al, 2021;Kiisk & Rungi, 2020). For example, Google was listed in 2004 and Facebook was launched in the same year, today they are among the top global (R&D) companies with a market capitalization in the range of one trillion USD.…”

Learning organizations and value creation

“…But, if your organization has a strong R&D knowledge generation approach, understand what an M&A may (or may not) accomplish. As Kiisk and Rungi (2020) demonstrate, "internal and external knowledge development strategies are not complementary, signifying a deliberate and difficult choice that companies must make regarding their knowledge path" (pp. 305-319).…”

“…Keeping with the idea of knowledge across the organizational boundary, Kiisk and Rungi (2020) in "Knowledge cannibalism in the European ICT sector" attempt to determine how companies should best generate knowledge. Should the company use internal knowledge or obtain knowledge externally?…”

Guest editorial

“…In addition, special knowledge and skills affect the supply side of the value creation process, contributing to the creation of monopolistic conditions and hence profitability in terms of rents or profits above the economic costs. For that reason, in this special issue, Kiisk and Rungi (2020) attempted to identify which knowledge generation strategy is most beneficial for companies. They conducted a longitudinal analysis of the European ICT companies contrasting internal knowledge creation, in the form of patent accumulation and research and development, with external learning through merger-and-acquisition (M&A) activities, to uncover the best approach for performance maximization.…”