Gains and Pains from Contract Research : A Transaction and Firm-level Perspective

Determining the research and development (R&D) boundaries of the firm as the choicebetween internal, collaborative and external technology acquisition has since long been amajor challenge for firms to secure a continuous stream of innovative products or processes.While research on R&D cooperation or strategic alliances is abundant, little is known aboutthe outsourcing of R&D activities to contract research organizations and its implications forinnovation performance. This paper investigates the driving forces of external technologysourcing through contract research based on arguments from transaction cost theory and theresource-based view of the firm. Using a large and comprehensive data set of innovating firmsfrom Germany our findings suggest that technological uncertainty, contractual experience andopenness to external knowledge sources motivate the choice for engaging in contract researchactivities. Moreover, we show that internal and external R&D sourcing are complements: themarginal contribution of internal (external) R&D is the larger the more firms spend onexternal (internal) R&D.