Making Up Is Hard to Do: Knowledge Acquisition Strategies and the Nature of New Product Innovation

Abstract

Innovation creates significant challenges for firms in high‐technology industries. This article examines how the use of external knowledge acquired from mergers and acquisitions (M&As) and joint ventures (JVs) influence the nature of innovative competence in the global pharmaceutical industry. We create a unique database on never‐before approved products that measure the scientific merit of new, exploratory product innovations, ranging from radical to incremental. We then follow their market success by recording the number of new exploitative product innovations that stem from these product innovations and that are later approved and subsequently marketed. Using a large data set spanning a 15‐year period, we find that firms were able to “make up” for their lack of exploitation or exploration innovative capabilities through the use of M&As and JVs. These external knowledge acquisition strategies were found to overcome internal processes that otherwise could cause firms to overemphasize exploitation over exploration and vice versa. Our findings suggest that acquiring external knowledge via M&As is associated with diminished exploratory product innovation, while assimilating external knowledge sourced from JVs is associated with a reduction in new exploitative product innovation.

Time to learn? Assignment duration in global value chain organization

“…Monteverde & Teece, 1982) indicate that technologically sophisticated, specialized activities tend to be retained in-house, while simpler, standardized activities are most often outsourced, although the increasing sophistication of specialized suppliers in many industries (e.g. pharmaceutical contract services) are changing this traditional outsourcing model (Dunlap et al, 2016;Van Arnum, 2012).…”

“…The global pharmaceutical contract services industry effectively illustrates our ideas and provides a fertile environment for further research in this area. As the competitive, investment, and regulatory landscapes of the pharmaceutical industry changed throughout the 1990s and 2000s, disaggregation and dispersion of GVC activities by orchestrating MNEs to independent suppliers increased significantly (Dunlap et al, 2016;Miller, 2017a). This growth has been particularly strong in Asian economies where governments have focused on attracting pharmaceutical activities as political and economic priority areas , but the capabilities of USand Europe-based suppliers are still more advanced than their Asian counterparts (Shanley, 2015).…”

“…The firm coordinates global sourcing, logistics, distribution, and retailing activities via its network of over 15,000 suppliers in more than 60 countries (Li & Fung Limited, 2016), and maintains the ability to identify and rapidly switch production for its customers to low-cost factories around the world as needed. Similarly, large pharmaceutical MNEs such as Pfizer increasingly outsource, offshore, and reconfigure significant portions of their value chains to take advantage of a rapidly growing contract services industry that has emerged over the past three decades (Dunlap, McDonough, Mudambi, & Swift, 2016;Haigney, 2016;Van Arnum, 2012). Flexibility to rapidly and effectively reconfigure control-location combinations to continuously capture increasing value through cost reduction and capability enhancement is a core competence of successful GVC orchestrators (Liesch, Buckley, Simonin, & Knight, 2012).…”

Technology Gap, Reverse Technology Spillover and Domestic Innovation Performance in Outward Foreign Direct Investment: Evidence from China

“…Important micro-mechanisms for reverse technology spillover have also been identified. First, EMMNCs can acquire new technology related to core business or technology to compensate for their technical disadvantages through mergers and acquisitions, improve their technology portfolio and ultimately enhance their competitiveness (Dunlap et al, 2016). Alliances with local firms, such as joint ventures, provide an important way to gain access to a more open and wider range of knowledge resources (Katila and Ahuja, 2002).…”

Can the Gap and Rating of Market Expectation Promote Innovation Input of China Manufacturers?

“…The previous literature shows that innovation is an essential way for enterprises to improve their competitive advantages, and many internal and external factors affect enterprise innovation, such as government behaviors [2], manager characteristics [3], organizational learning [4], capital market [5], and environmental management [6]. Simultaneously, with the vigorous development of capital markets, the forecasting and rating institutions as the specialized market intermediaries connecting investors and listed companies, the function of public opinion guidance and supervision of the institution is increasingly apparent, and the external governance effect is prominent, which can significantly influence the innovation decisions of managers of listed companies.…”