Journal of High Technology Management Research 16 (2005) 209 224

Types of technology sourcing and innovative capability: An exploratory study of Singapore manufacturing firms
Hongxin Zhao a,*, Xuesong Tong b, Poh Kam Wong c, Jishan Zhu d
c

Boeing Institute of International Business, John Cook School of Business, Saint Louis University, United States b TCL Thompson, USA Center of Technology Management, Faculty of Business Administration, National University of Singapore, Singapore d School of Business, Long Island University Brooklyn, NY 11201, United States

Abstract Despite a variety of technology sourcing modes that have been identified in the current literature, the existing studies tend to either focus their analysis on either a single mode of sourcing or on the choice of external and internal sources. This study goes beyond the existing literature by identifying the types of various technology sourcing modes based on factor analysis. It further links the technology sourcing types with the innovative capabilities. Using a survey sample of 109 manufacturing firms in Singapore, we identified four types of technology sourcing: partnership-based; market-based; value-chain-based and internal sourcing, and showed the significant relationships between sourcing types and absorptive capability and competitive environment. The statistical results also showed varying impacts of different sourcing types on firms innovative capability. D 2005 Elsevier Inc. All rights reserved.
Keywords: Technology sourcing; Innovative capability; R&D

1. Introduction Technology is a major source of competitive advantage and represents critical strategic assets. In a world economy increasingly based on the advent of technology, firms are seeking to grow and diversify through technological innovation. However, not all innovations used by a firm need to be developed within the firms in-house R&D. This could be due to two reasons. First, because of the high costs often incurred in the process of technological development, companies can no longer rely entirely on their in-house R&D facilities to supply the technology they need. To introduce new products into the market without delay and remain competitive in the industry, firms have to use a mix of strategies to acquire technologies from both within the corporate system and from external sources. Second, rapid development and deployment of technology shortens the product life cycle and technology quickly becomes less proprietary and obsolescent, making access and utilization of readily available technology more important than reliance on in-house generation and possession of technology (Bolton, 1993). As todays technology becomes increasingly complex and interdisciplinary, it is difficult for an organization to develop the needed technology independently (Radnor, 1991). Thus, internal R&D is no longer the first resort to obtain technology (Coombs, 1998), and technology sourcing through multiple channels becomes a critical factor in maintaining firms competitive edge.
* Corresponding author. Tel.: +1 314 977 3834; fax: +1 314 977 7188. E-mail address: zhaox@slu.edu (H. Zhao). 1047-8310/$ - see front matter D 2005 Elsevier Inc. All rights reserved. doi:10.1016/j.hitech.2005.10.004

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This study has two objectives. First, unlike most of the previous studies that examined one or two modes of technology sourcing, this study provides a comprehensive coverage of the wide range of technology sourcing modes identified in the existing literature as well as from industry informants. Rather than imposing a priori classification, factor analysis is applied instead to identify typologies based on various technology sourcing modes. Second, this study links the identified technology sourcing types with innovative capability of firms by examining the varying impacts of sourcing types on innovative capability. In particular, by linking the types of technology sourcing with innovation capability measures, we show that the derived taxonomy in this study has significant analytical power and can be used to predict the innovation performance of firms. By achieving these research objectives we contribute to the current body of technology management literature in two ways. First, much of the existing literature in technology management and transfer centers on the sustainability of a firms competitive advantage (Peteraf, 1993; Reed & DeFillippi, 1990), factors of absorptive capacity (Cohen & Levinthal, 1990; Teece, 1977), modes of transfer (Contractor, 1984) and choice of transfer mode (Davison & McFetridge, 1985; Hagedoorn & Duysters, 2002; Tsang, 1997). Although a variety of technology sourcing modes has been identified, the existing studies tend to either focus their analysis on either a single mode of sourcing or on the choice of two broadly categorized sourcing: external and internal (Roberson & Gatignon, 1998). Further, researchers often disagree on the distinctions and definitions of modes of technology sourcing. For instance, joint venture and alliances were viewed as one type of sourcing by Roberts and Berry (1985), whereas Milson, Raj, and Wilemon (1996) treated them as different types. The current paper integrates these diverse modes of sourcing into parsimonious types of sourcing strategy. Conceptually this approach provides a clear and simple framework to comprehend a large array of seemingly unrelated sourcing modes and it is especially relevant to the practicing managers when one considers bundling multiple modes into a meaningful and manageable types of sourcing activities. Second, we contribute to the emerging literature on the role of technology sourcing in the enhancement of innovativeness. Although the use of external technology acquisition is growing, it has been noted that there remains a need for further research to evidence the impact of technology sourcing on firms innovativeness (Atuahene-Gima, 1993). For ease of exposition, the discussion in this paper uses the term btechnology acquisitionQ and btechnology sourcingQ interchangeably to denote any mechanism for acquiring technological capability, whether internally oriented (e.g., own R&D) or externally oriented (e.g., licensing, acquisition of another company owning a technology). Following Atuahene-Gima (1993), we define technology to encompass both product and process technology. This paper is organized as follows. Section 2 discusses the related literatures and conceptual development. Research methods are described in Section 3. Section 4 reports the results of the analysis. The final section provides a summary of the findings and their implications for future research. 2. Related literature and conceptual development Studies of technology sourcing tend to fall into two streams of inquiries: resource-based theory of firm and transaction cost theory. Drawing primarily on the work of Penrose (1959), the resource-based theory of the firm maintains that the competitiveness of firms depends on their endowments of resources that are rare, inimitable and sustainable (Barney, 1986). According to this school of thought, technology typically represents the intangible resources (Hall & Ziedonis, 2001) and core competencies that can be leveraged and exploited in achieving better performance (Grant, 1996; Patel & Pavitt, 1994; Prahalad & Hamel, 1990). Thus, maintaining long-term competitive positions and developing core competencies are major motivations for technology acquisition (Porter, 1983), and technology sourcing is essentially conceived as a resource-seeking behavior. Through acquisition of these assets, firms are in a better position to respond and adapt to technological change (Leonard-Barton, 1990). Since technology is viewed as a crucial strategic resource, the mode of technology sourcing can therefore be viewed as a strategic choice regarding the types of firm-specific resources needed to achieve sustainable competitive advantage (Barney, 1991; Hamel, 1991). The second perspective on technology sourcing is transaction cost theory (Williamson, 1985). Transaction cost theory suggests that firms choose bmechanism of exchangeQ (internal vs. arms length) by which they can exploit their resources at minimal costs (Hesterly, Libeskind, & Zenger, 1990). Asset specificity, uncertainty, and free-riding risk have been overwhelmingly studied as the core attributes of a transaction and the primary determinants of cost efficiency of a governance choice (Williamson, 1979, 1991, 1996). Using the framework of the transaction cost theory, a number of studies have centered their analysis on the choice of types of technology sourcing (Pisano, 1991;

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Teece, Pisano, & Shuen, 1997). For instance, studies of technology sourcing focused specifically on the link between organizational attributes and technology sourcing (Baum & Singh, 1994; Chatterji, 1996). Chiesa and Manzini (1998) suggested that one classifies the different modes by judging their level of integration, which is defined as the degree to which sourcing activities and resources involved are internalized or integrated within the firms own activities and resources. The level of integration can be measured by company impact, time horizon, control, time/cost, and flexibility. Another study also demonstrated the existence of differences of various external sourcing in terms of organizational integration (Grandstrand, Bohlin, Oskarsson, & Sjoberg, 1992) ranging from least integrated technological scanning as the least integrated means of technology acquisition to internal R&D. In the same vain, some research dichotomized technology sourcing strategy as either internally oriented or externally oriented, with the choice being determined on the basis of a comparison of the risk and cost involved in the two modes. A recent transaction-cost based study of determinants of choices of internal and external modes of technology sourcing documented that firms that have less commitment to product category-specific assets are capable of measuring innovation performance, face higher technological uncertainty, have more experience in successful technology alliances, and compete in low growth product areas favored technology alliance as a means to acquire technology versus internal R&D (Roberson & Gatignon, 1998). 2.1. Conceptual development Departing from resource-based and transaction cost perspectives, we take the exploratory approach to classifying various technology sourcing modes and examining their impacts on innovative performance. We discuss in the rest of this section the relevant conceptual elements underlying our subsequent empirical exercises. 2.1.1. Types of tecnology sourcing Up to date, only a limited number of studies specifically focus on technology sourcing types. Using a sample of 64 biotechnology firms in the USA, Chakrabarti and Weisenfeld (1989) developed three strategic types of technology acquisition from five modes of acquisition: internal developer; joint developer and cooperative financed. These types were later replicated by Ng, Pearson, and Ball (1992) to categorize 23 biotechnology firms in the UK in their analysis of company strategies. Grandstrand et al. (1992) examined the perceived importance of five modes of technology sourcing based on a sample of 42 firms in Japan, Sweden and US. Their finding suggests an increased importance of using external technology, and their product case studies also showed that as firms diversified into new product areas, the external technology became more important. Although the existing literature on technology sourcing is limited, many relevant studies of various sourcing modes are of value in developing conceptual typology. A cursory summary of various modes of technology sourcing is presented in Appendix A. Combining these studies suggest that existing studies tend to either concentrate on a single mode or on the dichotomized choice between internal and external sources. However, in our field interviews with companies, we found that firms do not acquire technology using one mode at a time. Instead, they often use a combination of modes simultaneously. For instance, joint ventures as a means of acquiring technology often include technology licensing. Moreover, instead of highlighting substitutability among different technology sources, our field informants suggest that certain technology sources may be complementary in nature. However, collectively different patterns of various technology sourcing modes invokes a basic question: do the diverse modes of technology sourcing group together sharing commonalities characterized certain meaningful factors? Identifying this typology is important since it can serve as a leading step towards a theoretical reasoning and rigorous empirical testing of what attributes of these technology sourcing types share for future studies. Taking sourcing practice as a technology search practice and the strategic choice of firms, the decision to rely entirely internal source of technology or complement the internal technology by externally sourcing technology is a central component of technology strategy of a firm (Zahra, Sisodia, & Das, 1994). In addition to the cost and control considerations, the absorptive capability and competitive environment offer viable indicators characterizing technology sourcing. Absorptive capability refers to firms ability to identify, assimilate and exploit knowledge and information (Cohen & Levinthal, 1990). Previous studies suggest that firms that possess the absorptive capability are more capable of evaluating the external knowledge, taking in all its detail and modifying and integrating into organizational procedures (Leonard-Barton, 1988; Martin & Salomon, 2003). Study of technology sourcing through international acquisition found that potential targets with high R&D intensity (indicator of high absorptive capability)

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are more attractive to acquirers whose R&D intensity is also higher (Ruckman, 2005). To the extent that technology sourcing in essence is a knowledge search, the sourcing strategy chosen by a firm is likely to differ depending on the absorptive capability. The absorptive capability affects sourcing in two ways. First, firms must have the ability to identify and assess the value of technology, and the ability to assimilate and internalize the acquired technology. Without these capabilities, technology sourcing can not be realized. Second, technology sourcing involves certain risks and uncertainties. Because possession of absorptive capability provides firms with the scanning and evaluative capabilities, firms are more confident and willing to bear the uncertainties and risks associated with technology sourcing. Hence, they are more likely to take aggressive external sourcing strategies. Hypothesis 1. The use of external technology sourcing types is significantly associated with the absorptive capability of a firm. Firms with higher absorptive capability tend to use aggressive sourcing strategies. A competitive environment represents the contextual influences. Theoretical perspectives of population ecology (Hannan & Freeman, 1977), resource dependence (Aldrich, 1979; Pfeffer & Salancik, 1978), industrial economics (Freeman, 1982) have long pointed out the important influences of environment on strategy and structure. A number of previous studies suggest that firms operating in highly competitive environments tend to be more innovative (Miller & Friesen, 1984; Khan & Manopichetwattana, 1989; Sauitaris, 2002). The key reasoning behind these findings is that fundamental changes in an organizations environment likely lessen the value of its key resources, such as technological assets (Tushman & Anderson, 1986). The rising complexity and increasingly technology-based competition in different industrial environments often exerts different demands for the development and utilization of technology. The changing characteristics associated with technological progress and innovation life cycle described by Utterback (1994) drive industry evolution and have significant implications for the competitive dynamics and viability for both firms and industries (Anderson & Tushman, 1991). The discontinuous technological change characterizing various industries (Anderson & Tushman, 1990; Ehrnberg, 1995; Ehrnberg & Jacobsson, 1997) affect the competitive nature of the industry that increase the need and urgency for firms operating in this type environment to search technology beyond firm boundaries. Thus, it is likely that firms operating in a more competitive environment tend to rely more extensively on aggressive technology sourcing strategies to mitigate the uncertainties caused by a competitive environment. Hypothesis 2. Firms operating in a higher competitive environment tend to use aggressive external sourcing than firms operating in lower competitive environment. 2.1.2. Technology sourcing and innovative capability As firms rely more and more on the rapid development and diffusion of innovation, managing technology innovation process becomes vital to corporate survival (Porter, 1990). Ultimately, the strategic decision of technology sourcing is expected to improve the innovative capabilities of firms. Innovation capability consists of a firms ability to generate knowledge in the form of intellectual property such as a patent. However, merely the creation of patent is not enough to meet the product demands by commercial markets. Technological advance to which technology sourcing contributes must have some commercial value in the marketplace. Innovation capability is the application of relevant knowledge to the attainment of market value and is bthe successful implementation of creative ideas within an organizationQ (Amabile, Conti, Coon, Lazenby, & Herron, 1996, p. 1155). In this study we particularly focus on the application side of innovation that relates to the adoption and implementation of useful ideas (Kanter, 1988; Van de Ven, 1986). Given that technology offers firms the ability to survive in the competitive market (DAveni, 1994; Garud & Kumaraswamy, 1993), technology sourcing that directly complements and supplements a firms existing technological capabilities should influence their innovative capabilities. Up to this point, most of current studies of technology sourcing tend to focus on financial and market performance. If it is not remove, financial performance at best is indirect. This is probably why a number of studies showed inconsistent findings on the impacts of technology strategy on financial performance (Hagedoorn & Schrakenraad, 1994; Zahra, 1996). Few studies investigated the effect of technology sourcing on product performance, except the work of Zahra (1996). In the context of biotechnology ventures, Zahra found that although corporate-sponsored ventures made greater use of external technology sources, they showed no significant differences in introducing new product development. Studies linking technology sourcing practices with innovation are scanty with the exception of a very recent work by (Nicholls-Nixon & Woo, 2003a,2003b). In examining the US pharmaceutical firms between the period of 1981 and

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1991, Nicholls-Nixson and Woo (2003a,2003b) found mixed results about the relationships between technology sourcing (internal R&D and external R&D) and technology output (patent, product and reputation). R&D was positively associated with patent output and reputation, but not with product. The mixed findings and the scarce efforts given to studies about the relationships between technology sourcing and innovative capability create a dilemma. On one hand, we may feel certain that technology sourcing is strongly tied to innovative capability, and on the other hand we probably feel uncertain as to how various modes of technology sourcing practices that mesh with one another in some bideal typesQ sense link with innovative capabilities. In view of this dilemma, we choose to propose a grand conjecture about the relationships of technology sourcing types and innovative capability subject them to an empirical test linking the identified typologies of technology sourcing with innovative capabilities. We assert that technology sourcing as a technology strategy pursued by firms to speed up technological development (Pennings & Harianto, 1992) and to enhance organizational learning (Hakanson, 1995) bear significant influences on the innovative performance. While internal sources of technology (e.g., in-house R&D) build the prior knowledge base needed to identify, assimilate and exploit technology (Cohen & Mowery, 1984), technology acquired through internal and external modes (e.g., strategic alliances, learning from customers) can add and amplify the knowledge base that eventually leads to the increased innovative capability. Hypothesis 3. Technology sourcing contributes positively to the innovative capabilities of firms. 3. Research methods 3.1. Data Data used for the analysis was collected through a structured mail questionnaire survey among manufacturing firms in Singapore in 1996. The survey instrument was reviewed first by three scholars in technology management. For technology sourcing modes, initially we interviewed four R&D managers to come up a list of most frequently used sourcing modes. We then combined this list with the sourcing mode list based on review of the literature related to technology sourcing. This list of sourcing modes believed to be representative of all sourcing modes and important to the enhancement of innovative capability of firms. These sourcing modes were then incorporated into the questionnaire. After questionnaire items were generated, a pilot test of the questionnaire was conducted with 14 senior executives in charge of technology development for bexamining the content validity of the scaleQ (DeVellis, 1991, p. 75). A revision based on the feedback from the pilot test was made for detecting weaknesses and for improving the quality of individual questions and the entire questionnaire (Converse & Presser, 1986; Cooper & Schindler, 1998). The final list of sourcing modes of 14 sourcing modes (see Table 2) is included in this survey. We did not include technological scanning since only few informants in our pilot test indicated it as a major sourcing mode. Although the list may not be complete, we are confident that it covers most of the modes discussed in the literature. Because technology acquisition is executed within the context of strategic decision making, senior executives and managers in charge of technology development equivalent to the rank of chief technology officer (CTO) were selected as our respondents. These respondents are selected since they have the most power to influence the sourcing decisions and have the intimate knowledge of the technology needed by a firm (McGee & Thomas, 1986). The survey was administered by the Center for Management of Technology (CMT) at the National University of Singapore. A total of 758 companies were randomly selected from the Directories of the Manufacturing Companies in Singapore as published by the Economic Development Board (EDB) of Singapore. After removing 49 returns indicating incorrect addresses/closures, 97 returns indicating they did not engage in innovation activities (and hence should not be covered by the survey) and another 24 incomplete returns, a total of 109 complete and valid returns were received at the end of the study, representing an actual response rate of 17% (109 divided by 588 valid sample). An analysis of respondents and unrespondents on firm characteristics (number of employees and percentage of firms in each industry represented in the sample) revealed no statistically significant differences, indicating no signs of sample selectivity bias. The return rate is comparatively low, reflecting the typical reluctance of managers in Asian countries to participate in company surveys. Nonetheless, the sample size is relatively larger than most of the existing studies of technology sourcing types and is not atypical of management surveys, particularly when no incentives were offered and no follow-up was conducted. Appendix B presents the profile of the responding firms. As can be seen, the sampled firms are relatively technology-intensive, with about one-third of the sampled firms spending more than 3% of their sales on

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R&D and about 30% having 10% or more employees with science or engineering degrees. The sample firms are also relatively young with an average age of 15 years. This reflects the recent industrialization phenomenon of the Singapore economy since the early 1980s. The sample firms fall in a wide range of fifteen manufacturing sectors indicating that the sample firms are representative of major manufacturing activities. Because the technology sourcing data used for this study were collected from a single source that may lead to potential common method bias, we adopted two measures to reduce potential effects of such bias. First, we had the questionnaire items of technology sourcing (dependent) precede those of absorptive capability and competitive environment (independent) variables in our questionnaire design to reduce the impacts of respondents implicit effectiveness tendency. This procedure was suggested by Podsakoff and Organ (1986), and Williams, Cote, and Buckley (1989), and was used by previous studies (see Tsui, Ashford, St Clair, & Xin, 1995). Second, the industry classification used to construct competitive environment and the control variable of firm size are both from the archived data in the directory. This achieve data again helped us to mitigate the potential bias. Finally, the post-hoc global factor analysis including all the variables revealed neither all variable were loaded in a single factor nor any single factor dominantly accounted for the majority of the variance, suggesting that serious common method bias threats were not significantly present (Podsakoff & Organ, 1986). 3.2. Measurements 3.2.1. Technology sourcing For technology sourcing modes, the respondents were asked to use a 5-point Likert scale to indicate the importance (1 = not important; 5 = very important) of each of the 14 technology acquisition modes in benhancing companys product and process technological capabilityQ. These scales were used for factor analysis. 3.2.2. Innovative capability Innovation denotes the adoption and implementation of useful and novel ideas (Kanter, 1988; Van de Ven, 1986; Von Hipple, 1982). Successful innovation often leads to the creation of manufacturing capabilities of firms. We used two measures to capture the innovative capability of firms. The first two measures (Dependent Innovative Capability = DIC and Autonomous Innovative Capability = AIC) are constructed using the four measures given below. Specifically, we measure the percentage of sales generated by a firm according to the following four categories: 1. percent sales of products manufactured according to the design specification of the parent company; 2. percent sales of products using original equipment manufacturing (OEM); 3. percent sales of products designed and developed by companies themselves according to buyers requirements (ODE); and 4. percent sales of products designed and developed by companies themselves and sold under their own brand (OBM). Since the first two categories reflect basically the sales generated by relying on the use of external product innovations, we therefore combined them to derive the first aggregated measure that indicates the firms capabilities in exploiting external product innovation (DIC). The last two categories both reflect internal product innovation capability. Although OBM sales arguably represent a higher degree of internal capability than ODM, for simplicity we combined them to obtain the second aggregated measure of the extent of internal product innovation capability (AIC). 3.2.3. Variables of absorptive capability and competitive environment As discussed in the previous section, typologies of technology sourcing may differ from each other along absorptive capability and competitive environment. Following existing studies (Cohen & Levinthal, 1990), we used a three-category R&D spending dummy to indicate the absorptive capability (1 = R&D spending less than 1%; 2 = greater than 1% but less than 5%; 3 = more than 5%). Because industries differ in competitive dynamism and competitive environment in each industry reflects the varying degree of unpredictable change and volatility, we used an industry dummy to capture the variances of competitive environment. Following Hagedoorn (1993) and Paulinyi (1993) we classified sample firms into low and high competitive (1 = low tech; 2 = high tech) environment based on the industry sectors reported by sample firms (see Appendix A).

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Besides the possible influence of technology sourcing strategies on innovative capabilities, we also controlled for the factors of firm size and the age of the firm. Firm size is measured by number of employees and firm age by number years established. Both data were collected from the Directory of Manufacturing Companies in Singapore. To examine how the technology sourcing strategies are related to innovation capabilities after isolating other firmspecific factors, we run separate regressions on the first two types of innovation capabilities (dependent and autonomous innovative capability), respectively. 3.3. Estimation procedures As stated in the introduction section, this study sets out to achieve two objectives: identifying the typology of technology sourcing and examining the linkage between the sourcing types and innovativeness. To achieve these two objectives, we adopt a three-step analysis. At the first step, to examine the analytical usefulness of the typology of identified technology sourcing modes and uncover potential clustering of technology sourcing modes around a smaller number of sourcing strategies, we perform factor analysis to discover potential groupings among various means and then test their relationship with accepted measures of the innovative performance of the firms concerned. Factor analysis is carried out (see Table 2) to reveal the underlying communalities in a heterogeneous set of sourcing modes. In essence, Principal Component Analysis (PCA) normalizes the identified variables into a small number of factors that can be interpreted as representing groupings of the different sourcing modes. The underlying assumption is that technology sourcing strategies have multiple dimensions sharing certain commonalities. It is only by identifying and combining these dimensions to produce bgestaltsQ (Gartner, Mitchell, & Vesper, 1989) which b. . . capture the interdependencies among attributes . . .Q (Woo, Cooper, & Dunkelberg, 1991, p. 96) that a more holistic and realistic perspective of the technology sourcing strategies of firms can be obtained. At the second step, we estimated whether the sourcing types identified can be meaningfully interpreted to support the proposed hypotheses. The descriptive taxonomy of sourcing modes based on factor analysis provides only preliminary classification. These taxonomies will be potentially more meaningful to contributing to theoretical propositions for future study if they attest to a more rigorous examination supported by some priori expectations. To this end, we used the factor scores of four sourcing types derived from factor analysis to perform ANOVA tests to characterize the four types in terms of absorptive capability and competitive environment. We examine whether these two variables significantly differentiate the identified four types of technology sourcing as distinct groups.1 At the third step, to examine whether the different types of technology sourcing strategy lead to different innovative capability, we performed multiple regression analyses using the saved four factor scores indicating the four types of sourcing strategies and four control variables, as previous studies indicated the association of innovative activities with firm size (Acs & Audretsch, 1991; Cohen & Klepper, 1996; Levin, Cohen, & Mowery, 1985), the age of the firm and competitive environment (Khan & Manopichetwattana, 1989; Miller & Friesen, 1984; Sauitaris, 2002). In addition, we also used the absorptive capability as a control as previous studies suggested its impact on innovative capabilities (Ettlie, Bridges, & OKeefe, 1984; Khab, 1990). We chose to use a multiple regression model since this multivariate method permits us to isolate the influences of other variables on innovative capability. 4. Results Table 1 reports the descriptive statistics of all the variables used in this study. The results of factor, ANOVA and regression analyses are discussed below. 4.1. Groupings of technology sourcing types The results of factor analysis using PCA is presented in Table 2. The 14 acquisition modes loaded significantly on four factors1 explaining 62.45% of the variance. The first factor can be interpreted as partnership-based
The factor scores are uncorrelated (standardized) scores generated from factor analysis. They contain the information common to the original variables (Manly, 1986).
1

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Table 1 Descriptive statistics and correlations Variables 1. Dependent innove. (DIC) 2. Autonomous innove. (AIC) 3. Internal source 4. Partnership-based 5. Market-based 6. Value-chain-based 7. Absorptive capability 8. Size 9. Age 10. Competitive environ. Mean 60.9 39.3 3.76 3.68 3.12 3.17 1.44 818 15 0.45 S.D. 37.7 40.1 0.63 0.90 0.89 0.83 0.49 1879 8.98 0.50 1 1.00 0.10 0.18* 0.13 0.30** 0.27** 0.25** 0.13 0.17* 0.13 2 1.00 0.17* 0.29** 0.22** 0.12 0.36*** 0.08 0.32 0.27** 3 4 5 6 7 8 9 10

1.00 0.19* 0.12 0.30** 0.38*** 0.12 0.26** 0.10

1.00 0.08 0.11 0.22** 0.17* 0.12 0.07

1.00 0.05 0.12 0.08 0.18* 0.20**

1.00 0.16* 0.14 0.16* 0.16*

1.00 0.03 0.19* 0.11

1.00 0.11 0.19*

1.00 0.08

1.00

*P b 0.10; **P b 0.05; ***P b 0.01.

technology sourcing as it is loaded heavily by strategic alliance, joint ventures and acquisition. These sourcing mechanisms generally are structured around contractual arrangements and reflect ongoing arrangements where partners mutually share their expertise (Tyler & Steensma, 1995). A key common attribute underlying the sourcing mechanisms of this factor is partnership. As a firms broad-based skills and capabilities form the core competencies that are likely to provide itself with longer-term competitive advantage (Hagedoorn, 1993; Reed & DeFillippi, 1990), firms are able to internalize core competencies and enhance competitiveness (Prahalad & Hamel, 1990) by establishing cooperative relationships. These cooperative relationships are utilized to acquire tacit knowledge from a partner (Kogut, 1988). The second factor can be interpreted as market-based sourcing . It is heavily loaded with 5 modes of acquisition. This type of sourcing is an analogue to technology market described by Arora, Fosfuri, and Gambardella (2001). It focuses on sourcing technology through contract R&D, the outright purchase of equipment and know-how in the open market. Companies pursuing this type of sourcing may not have the resources to perform all promising research and development activities by themselves. Consequently they turn to technological know-how available in the open market. Since this type of technology sourcing tends to be short-term oriented, companies are also free from the risk of opportunistic behavior associated with long-term partnership and incur no exit cost. Particularly, technology licensing offers an effective alternative to internal R&D (Atuahene-Gima, 1992). It is a speedy route to successful new product development (Gold, 1987). The third factor can be interpreted as value-chain-based technology sourcing as it captures three items related to incorporating both supplier and customers feedback about improving innovations introduced by other firms. This

Table 2 Results of factor analysis on technology sourcing (n = 109) Individual acquisition modes 1. JV or acquisition of minority stake in other tech. firms 2. Licensing from other firms 3. Acquiring other companies that own the technology 4. Joint R&D, strategic alliances with other firms 5. Tech. transfer and assistance from government R&D institutes 6. Technology consultants and contract R&D 7. Joint R&D with public research institutes/universities 8. Purchasing plant and equipment 9. Learning from product spec. and feedback from customers 10. Incorporating suppliers technology 11. Improving on innovations introduced by others 12. Own R&D 13. Tech. transfer and assistance from parent or associate firms 14. Recruiting scientists and engineers Eigenvalue Partnership-based 0.848 0.706 0.641 0.636 0.759 0.716 0.649 0.540 0.758 0.724 0.611 0.756 0.636 0.519 1.781 Market-based Value-chain-based Internal sourcing

2.734

2.662

2.336

The Bartlett test of sphericity (significant at .01 level) indicates that the data is adequate for factor analysis.

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type of technology sourcing indicates the importance of the customersupplier relationship as a major conduit of acquiring needed technology. To some degree, it also reflects that technology sourcing is used as a part of the vertical technology integration strategy (Osborn & Hagedoorn, 1997; Pisano, 1991), as the critical dimension of tacitness of technology (Hauschildt, 1992) is pertinent to this type of technology sourcing. Because of the tacit nature of technology, the effective way for firms to acquire needed technology is through interactions with suppliers and customers rather than using traditional arms length transactions. The fourth factor consists of three items reflecting the use of internal R&D capabilities and resources. This factor can thus be interpreted as internal sourcing. Under this type of sourcing, technologies are obtained from firms own R&D efforts or from parent and affiliated companies. It should be noted that recruiting scientists and engineers is also considered as an important means to acquire technology under this strategic grouping. It is hard for firms to access tacit knowledge through market mechanisms (Hennart, 1988; Mytelka, 1991; Reed & DeFillippi, 1990). When knowledge and information is embedded in individuals, and systems and processes of firms, it is always difficult to acquire technology through normal market mechanisms (Cantwell, 1994; Hennart, 1988). dThe essence of firm-specific competitive advantage, which is non-tradable and relies instead on internal group learning processT (Cantwell, 1994, p. 4). Therefore, through hiring engineers and scientists who essentially embody tacit knowledge derived from their training and experience, companies are not only able to internalize the tacit knowledge of, they can also facilitate the internal technology sourcing process by engaging in the newly recruited R&D personnel. 4.2. The influences of absorptive capability and competitive environment Apparently the four identified sourcing types differ along the degree of aggressiveness and risks. While internal sourcing involves the least risk of all types, the partnership-based sourcing represents the most aggressive and risky one with potential free-riding issues and challenges of protecting proprietary knowledge. This finding is in line with the perspectives of technology management literature that the access to partners technology is a major reason for strategic alliances (Kogut & Chang, 1991). While these four sourcing types stand out as distinct groups, they are capricious in offering guidelines for future conceptual development. To further verify the appropriateness of the four sourcing types and test the proposed hypotheses, we evaluated these identified typologies using the absorptive capability and competitive environment as discussed in the previous section to characterize the sourcing types in an ANOVA tests. Table 3 presents the ANOVA test results. Because absorptive capability has three categories, we also performed Tukey tests. Though absorptive capability and competitive environment did not differentiate value-chain and market-based sourcing practices, respectively, all other sourcing types significantly differ from each other along these two dimensions. The results of ANOVA analysis further verified the typologies

Table 3 Results of ANOVA tests of the relationships between technology sourcing types and absorptive capability and competitive environment (n = 109) Technology sourcing types Internal sourcing Absorptive capability Low (L) Medium (M) High (H) F -statistics Tukeys significant Differences Competitive environ. High Low F -statistics 0.346 0.113 0.493 6.04** HNL Partner-based sourcing 0.179 0.401 0.487 10.09** HNM HNL Market-based sourcing 0.223 0.119 0.335 3.75* HNM HNL Value-chain sourcing 0.153 0.111 0.103 0.912 None

0.219 0.231 5.78**

0.362 0.171 7.14**

0.094 0.103 2.06

0.345 0.163 6.43**

***p b 0.01; **p b 0.05; *p b 0.10.

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derived from factor analysis. Therefore, we are confident that the four sourcing groups derived from the factor analysis represent distinct types. Further, our exploratory hypotheses (1 and 2) are supported. The results indicate that firms with high absorptive capability and operating in high competitive environment tend to source technologies aggressively through strategic partners and market mechanisms. This finding is consistent with previous studies of the relationship between absorptive capability and external technology sourcing (Jones, Lanctot, & Teegen, 2000). 4.3. Types of technology sourcing and innovation capability The four reduced factors discovered through factor analysis can be interpreted as a parsimonious representation of the generic strategies for technology sourcing. However, without relating them to the innovative performance of the firms concerned, it is impossible to know whether these generic strategies are in fact relevant for studying technology sourcing approaches of firms. As factor analysis results show that sourcing modes group to form four distinct types of sourcing strategies, we averaged the scores of sourcing modes of each type to form a single measure for each sourcing type. Cronbachs alpha tests of reliability were 0.89, 0.82, 0.78 and 0.75, respectively, for partnership-, market-, value-chain-based, and internal sourcing types. These measures of four sourcing types were then used to estimate the relationships between themselves and innovative capability in the multiple regression analysis. Table 4 presents the analytical result. High R squares of regression models suggest the appropriate model fits. Judged by the signs of coefficients, all technology sourcing types contributed positively to both types of innovative capabilities. However, the significances of these impacts varied even after other control factors were accounted for in the multiple regression model. First, as expected, internal sourcing significantly impacted both types of innovative capabilities indicating that internal technology development consistently provided sources of innovation for firms. The same is true for market-based sourcing contributing significantly to both types of innovative capabilities. This signifies the importance of obtaining technology and knowledge from the market in improving the innovative capabilities. Second, the value-chain-based sourcing strategy only significantly impacted on DIC. In contrast, the partnership-based sourcing strategy failed to exert significant influences on DIC. However, it significantly influenced AIC. In all, the test results showed differential impacts of technology sourcing and are consistent with the observations of Nicholls-Nixon & Woo, 2003). These results suggest that the partnerships through joint ventures, strategic alliances and acquisitions are more important technology sources for enhancing the autonomous and

Table 4 Regression results of the relationships between technology sourcing types and innovative capability Independent variables Dependent variables Dependent Innovative Capability (DIC) Ba Technology sourcing Internal sourcing Partnership-based Market-based Value-chain-based Control variables Absorptive capability competitive environ. Size (# of employees) Age R -square Adjusted R square F value 0.22 0.18 0.25 0.26 t 1.99** 1.55 2.37*** 2.07** Autonomous Innovative Capability (AIC) B 0.21 0.29 0.28 0.14 t 1.778* 2.54*** 2.18** 1.15

0.30 0.19 0.16 0.27 0.316 0.216 3.15***

2.19** 1.72 0.885 2.65**

0.26 0.24 0.16 0.25 0.345 0.222 2.809***

2.10** 1.98** 0.51 2.05**

***p b 0.01; **p b 0.05; *p b 0.10. a B for dependent and autonomous innovative capabilities are standardized coefficient.

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independent innovations than value-chain channels that were more conducive to the development of dependent innovative capabilities. For control factors, it is worth noting that absorptive capability had invariably strong and positive relationships with both DIC and AIC, indicating that high level of resource commitment to R&D indeed contributes to firms innovative capabilities. This result is expected since absorptive capability as measured by R&D represents the most direct input factors in both innovation activities and absorptive capability. High absorptive capability would certainly enable firms to take up more advanced innovative efforts. Competitive environment turned out to be significantly associated with AIC but not DIC. In regard to the effect of the AGE of firms, the results demonstrated that the more established firms are more likely to engage in autonomous innovation while reducing dependent innovation. This finding suggests the organizational learning effect on the innovative outcome. The older firms may have accumulated experience and knowledge over the years, and have built its own in-house R&D capability to become more autonomous in innovation than younger firms. SIZE is not significantly associated with any of the dependent variables. 5. Discussion This exploratory study develops a new typology of four generic technology sourcing strategies that is derived from 14 different sourcing mechanisms. The first type identified is partnership-based sourcing through collaboration or mergers with other ventures, while the second type is market-based sourcing centered on outright purchases or licensing from universities. The third type emphasizes value-chain-based sourcing founded on supplybuyer relationships, while the fourth type emphasizes internal R&D or technology transfer from parent or associate firms. The correlation tests of these identified technology-sourcing types based on the absorptive capability and competitive environment further confirmed this typology, indicating that absorptive capability of firms and the competitive environment at industrial level are meaningful differentiators of technology sourcing types. Linking the four sourcing types with two indicators of innovative capabilities show that the technology sourcing types are indeed associated with innovative capabilities with varying impacts. Specifically, our study has identified clear links between the technology sourcing strategies and the type of innovation capabilities. Our findings show that the three types of innovative capabilities vary in accordance with the technology sourcing types. While market-based sourcing influenced significantly both dependent and autonomous innovative capabilities, partnership-based sourcing tends to have more impact on autonomous innovative capabilities, and value-chain-based sourcing has more impact on dependent innovative capabilities. Given the fact that firms often use more than one form of sourcing and the ultimate objective of technology sourcing is to increase a firms competitiveness, more research efforts are desired to systematically identify underlying dimensions shared by certain modes of sourcing and to link technology sourcing strategies with innovative outcomes. Drawing upon the various modes of technology sourcing identified by previous research (Chakrabarti & Weisenfeld, 1989; Ng et al., 1992) and descriptions of technology sourcing activities provided by our industry informants, the current study contributes to the literature by constructing a more comprehensive typology of technology sourcing modes than those covered in the existing literature. From the R&D management perspective, technology sourcing remains a key management issue for technologybased firms. Our findings about the typology of technology sourcing modes and their differential effects on innovative capabilities show clearly that technology management involves much more than just managing internal R&D activities. Instead, the ever-increasing pace and complexity of technology development calls for firms to source external technology effectively to sustain strong growth in innovation. The recent survey report by the Industrial Research Institute (IRI) showed the continued trend to search for various forms of external technology capabilities (IRI, 2001). Technology sourcing also remains a viable strategy to improve firms innovative capabilities. We believe that the four generic technology sourcing strategies derived from 14 frequently used technology sourcing modes offer a practical schema for technology managers to plan, implement, and evaluate technology sourcing activities for their firms. The contrasting pattern of impact of the different technology sourcing types strongly suggest that firms need to choose and combine their technology sourcing modes to fit their business strategies. Thus, firms that emphasize autonomous innovation capabilities need to engage in partnership-based sourcing modes, whereas firms emphasizing dependent innovation capabilities should emphasize value-chain based sourcing methods. In addition, they need to

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complement these sourcing modes with market-based sourcing modes. Then the practical implications for technology management are that technology managers need to align their companies technology sourcing activities with their firms innovation strategies. The exploratory nature of this study submits it to a few limitations to be addressed in future studies. First, the validation of sourcing typology only relied on two classification variables (absorptive capability and competitive environment). Though these two factors are theoretically grounded, more relevant factors based on priori theoretical and empirical expectations should be incorporated in future studies. For instance the sourcing modes can be classified based on similar motivations shared, the level of resource commitment demanded and the complexity of managing sourcing practiced. Technology sourcing through joint ventures, acquisition, joint R&D and strategic alliances are basically used to search complementary technology and technological synergies (Arora & Gambardella, 1990; Hamel & Prahalad, 1994; Kogut, 1988). In addition, these types of sourcing are also more expensive as compared to sourcing through interactions with suppliers and customers that are more motivated to acquire knowledge in order to improve the quality in the value chain (Harrigan, 1985). Sourcing through collaborations with universities and government institutions is, however, more triggered by the intentions of the firms to keep themselves abreast of leading edge technology even if these technologies may not lead to immediate commercial uses. Various sourcing modes also tend to cluster by the level of resource commitment. While internal sourcing may entirely rely on firms own resources, resource sharing that requires relatively lower level of resource commitment is clearly the nature of technology sourcing through joint venture, licensing and joint R&D. In comparison, sourcing through collaborations with government R&D institutes, research institutions, contract R&D, and incorporating feedbacks from suppliers and customers have the least resource commitment. Finally, in terms of management complexity, managing technology sourcing practices (modes 58 in Table 2) is comparatively less complex than other sourcing modes since they primarily rely on contracts. However, managing sourcing through partnership requires managerial skills to deal with often the delicate issues such as potential free riding and leakage of proprietary knowledge when partners have the intention to secretly capture the others tacit knowledge (Hagedoorn, 1993). Another limitation is the measure of innovative capability. Though we used three measures, they basically represent indirect and commercial side of innovation. Future studies may consider using more direct and technology-related measures of innovation such as patent and new product and processes generated. Replications of the relationships between sourcing types with the direct technology output measures will not only help us verify the stability of the model, but more importantly will advance our understanding of such linkage by offering more solid empirical evidence. Acknowledgements This study is supported by a research grant from the National University of Singapore (NUS). Research assistance provided by the Center for Management of Technology at NUS is gratefully acknowledged. Appendix A. A brief summary of studies of various sourcing modes

Internal R&D Technology licensing Technology alliance Acquisition Joint venture Joint R&D Learning from suppliers/customers Tech transfer from government Industryuniversity collaboration Purchase of technology Technology scanning External vs. internal

Grandstrand et al. (1992) Lambe and Spekman (1997) Atuahene-Gima (1992, 1993); Hagedoorn and Schrakenraad (1990, 1994); Sen and Rubenstein (1990) Grandstrand et al. (1992); Hagedoorn and Duysters (2002); Hakanson (1995); Lindholm (1990); Link (1988) Grandstrand et al. (1992); Harrigan (1985); Kogut (1988) Larson, Wigand, and Rogers (1986); Ouchi and Bolton (1988) Powell, Mankin, and Smith-Doerr (1996) Hermann (1983) Arora and Gamardella (1990); Feller, Ailes, and Roessner (2002) Grandstrand et al. (1992) Grandstrand et al. (1992) Jones et al. (2000); Nicholls-Nixon and Woo (2003a,2003b)

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Appendix B. Profile of the responding firms (n = 109)

Employees (mean) Age of the firm (mean years) Fixed Assets (% of firms) b 5 million 510 million 1050 million z 50 million R&D as % of sales (% of firms) None b 1% 12.9% 34.9% z 5% Competitive environment Aerospace and defense Industrial electronics Chemicals/materials Computer equip./software Electronic components Electrical equipment Pharmaceuticals Scientific instrument Telecommunication equip. Food, beverage and tobacco Paper and packaging Consumer electronics Industrial machinery Plastic and rubber Metal work Others High High High High High High High High High

818 15.1 26.7 18.8 22.8 31.7 15.5 25.2 26.2 11.7 21.4 # of firms

60 Low Low Low Low Low Low Low 49

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