Sourcing Technological Knowledge Through Foreign Inward Licensing to Boost the Performance of Indian Firms: The Contingent Effects of Internal R&D and Business Group Affiliation

Abstract

Sourcing technological knowledge from abroad is becoming a popular strategy among emerging market firms (EMFs). Combining the Knowledge-Based View and the Resource Dependence Theory, we argue that augmenting technological knowledge through foreign licensing enables EMFs to access state-of-the-art technological knowledge, reduce operational costs and risks associated to the innovation process, and develop a knowledge-based competitive advantage, ultimately boosting their financial performance. Using data about Indian firms observed from 2001 to 2013, we find that firms with a higher share of foreign inward technology licenses report better financial performance. However, the positive impact of technological knowledge accessed through inward licensing on firm performance is contingent upon: (1) the internal knowledge developed through R&D activity, and (2) the affiliation with business groups. While Indian firms with higher level of internal R&D are able to better leverage the value of foreign technological knowledge, thus reaching higher performance, firms affiliated to business groups gain fewer benefits from licensed foreign technological knowledge than non-business-group affiliated firms.

How does offshore outsourcing of knowledge-intensive activities affect the exports and financial performance of emerging market firms?

“…First, offshore outsourcing can provide quick access to frontier technology (Mathews, 2006;Kotabe & Kothari, 2016;Munjal, Requejo, & Kundu, 2019), which may enable EM global factories to not only gain higher productivity but also to realize higher quality of production-both are critical factors to succeed in international markets. Securing technology and other know-how enables EM global factories to modernize their production lines and consequently achieve production gains (Elia, Munjal, & Scalera, 2020). Thus, sourcing foreign technology can strengthen EM global factories' ability to compete in the international market, where profit margins are often lower and quality requirements are higher, compared to the conditions in the home market.…”

Competitive Pressure and the Moderating Role of the Knowledge Network on Internationalization Intent of Indian State-owned Enterprises

“…Hence, the SOEs cannot acquire or license technology from the domestic non-SOE firms. Augmenting technological knowledge through foreign licensing enables emerging market firms to access state-of-the-art technical knowledge (Elia et al, 2020). In the postmarket-liberalization period, the technology licensing arrangement is not readily available as the global firms do not have any critical need to partner with local firms/SOEs.…”

An integrative approach to international inbound sources of firm-level innovation

“…On the one hand, the advantages of licensing are well documented: licensees avoid substantial R&D investments; reduce the gestation time from upstream innovation to downstream product; and lower the uncertainties associated with developing new technologies (Elia, Munjal, & Scalera, 2020). For example, Nishimura et al (2005) developed a model of firm-level productivity growth that distinguishes between innovation through inhouse R&D expenditures versus technology absorption, with knowledge diffusion that can be 'active' (e.g., through patent purchases) or 'passive' (e.g., through learning-by-doing).…”